question about cc debt

[Jess21]

Hello there,

We are trying to get as ready as possible paying off cc debt so we can buy a house. My biggest debt right now is a navy fed cc that that i owe about 9k on it and credit limit is only $10k so the percentage being used its killing me!!  I was wondering if it would be a good idea to get a personal loan to pay off this cc.  Will this look better on my report since it would have the high balance compared to cc limit??  juts trying to find a way to make our credit up "prettier"  for a mortgage.  I will take me about 1.5-2yrs to pay off that credit card and we wanted to buy in about 6 months

[StartingOver10]

You don't have to have your debt paid off to get a mortgage.

Pull your mortgage scores here to see where you stand right now http://www.myfico.com/Products/FICO-Score-3-Report-View/

The scores you posted aren't mortgage scores and the pull is a soft pull if you do it here rather than through a lender.

If your mid score of the 3 (or you and your co-borrower) is at least 620 then you can get a FHA loan.  If you prefer a conventional loan then you really want the lowest mid-score of all the borrower(s) to be at least 680 for better PMI rates.  Otherwise stick with FHA. 

Right now you don't know your scores - because the mortgage scores are totally different than the FICO 08 scores you posted. Start by finding out where you are right now, you might not need to do anything.

Note:  you would see a big jump if you can get your utilization under 80% and you can do that with either a CLI or by paying it down or a combo of both

[Anonymous]

It depends which is a bigger issue for you - credit score or DTI.

It is possible that the payment amount on a personal loan will be higher than the minimum payment on the credit card.

I would only do the personal loan if you meet all three conditions:

1. Your DTI has breathing room

2. You don't care about spending extra money on the (most likely) higher interest personal loan

3. Your credit scores are borderline or slightly lower than minimum required scores for the mortgage loan you are looking to obtain

[ludawg23]

1) Check your FICO mortage scores - high CC utilization will be factored into your scores.

2) As far as having CC balances, LOs look at the overall picture.  What's your debt to income ratio when you factor in the CC debt? What's your overall income situation and your ability to pay back the loan in relation to the CC debt? If you're grossing 200K and have no other expenses, it's OK.  If you're grossing $50K and have student loans on top of a car payment, that's when the debt becomes a real issue.

DTI ratio

Income

Credit Score

I believe these are the biggest factors LOs are looking at.

[Jess21]

Thank you guys.  Let me add some detail so that hopefully you can see where im coming from

1.  The scores in my signature aren't up to date (sorry ive had that signature for a while).  Im not quite sure where I stand score wise at this moment

2.  The personal loan would have payment of pretty much the same as the minimun payment that cc right now and I will pay off as soon as possible soon the interested would be 5.5% on the loan and it is currently about %14.0 on the cc. (the personal wouldbe fr 48 months, although i plan on paying it off much sooner).

3.  I think DTI is where my problem is at.

My and my husband together make about 60k/year

we have a car payment of $430 a month and then that cc that its minimum is about $200/month.  We are looking into a house no more than $135,000 but I dont even know if we qualify for that much with our income.  We only have 5k in savings that we can use for small down payment, hopefully get seller to pay at least most of th closing cost. 

[ludawg23]

I'm not exactly sure what the recommended DTI ratios should be - I believe they vary depending on the particular loan you are trying to get but there are other factors that go into the approval such as income or cash reserve on hand.

Most sites have the recommended amounts being 28% and 36% respectively (Front-end vs Back-end)

http://www.zillow.com/mortgage-rates/buying-a-home/what-are-debt-to-income-ratios/

With your gross income of $60K per year, you're at monthly gross income of $5K.

28% of 5,000 - your monthly mortgage should not exceed 1,400.  This is your front-end DTI ratio.

If you tact on your monthly oglibations of 630 + 1,400 - your backend is about 41%

Most believe the back-end DTI is the most important so you are a little high in that aspect.

[StartingOver10]

OP, you are not in too bad a shape for a FHA loan - the maximum ratios allowed per FHA guidelines are 56.99% of your gross income for back end (total debt including new housing payment) and 46.99% for front end (new housing payment).

However, individual lenders have their own overlays and some cap their back end ratios on FHA loans to 50%.  You would have to find out from the specific lender you are using for your loan.

The 36% back end ratio is rule of thumb type info and not related to actual lender guidelines. Naturally it is smart to keep your debt low, but it isn't always possible to fit within rule of thumb guidelines.

The front end ratio is your new housing payment. It includes:  principal, interest, real estate taxes, homeowners insurance, mortgage insurance and HOA (if applicable). At $60k per year your monthly gross is $5000 and the max monthly front end is $2349.50 if your back end debt doesn't reduce it. However, your current back end debt does reduce the amount of your monthly payment to a max of $2219. using the 56.99 ratio.   Honestly that is probably more than what you want to spend and it is much more than what a $135,000 house would cost - unless your real estate taxes and insurance are extremely high (unlikely). 

The back end includes the new housing payment + the monthly payment to service your debt.  If you add another payment this will reduce what you can borrow for your new home.

The reality is this: are you more comfortable with having that extra installment loan you are planning to get to reduce your cc debt? If so, get the loan then get approved for a mortgage. You have to be comfortable with all of your payments.

[Jess21]

Thank you,  the purpose of the loan would just be to kill that cc that is using all that is available,  is the only cc that we would have with a balance too.  We actually dont even feel comfortable with a mortage payment of more than $850 total.  Its just that when I look at houses the ones we like the most fall most into the 130,00s so we would like to get approved for that.  i feel like we will never be able to buy the house we want

[Anonymous]

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@Jess21 wrote:

Thank you guys.  Let me add some detail so that hopefully you can see where im coming from

1.  The scores in my signature aren't up to date (sorry ive had that signature for a while).  Im not quite sure where I stand score wise at this moment

2.  The personal loan would have payment of pretty much the same as the minimun payment that cc right now and I will pay off as soon as possible soon the interested would be 5.5% on the loan and it is currently about %14.0 on the cc. (the personal wouldbe fr 48 months, although i plan on paying it off much sooner).

3.  I think DTI is where my problem is at.

My and my husband together make about 60k/year

we have a car payment of $430 a month and then that cc that its minimum is about $200/month.  We are looking into a house no more than $135,000 but I dont even know if we qualify for that much with our income.  We only have 5k in savings that we can use for small down payment, hopefully get seller to pay at least most of th closing cost. 

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In that case the personal loan wouldn't be a bad idea .