Doing This One Thing Could Be Your Ticket to Getting a Mortgage

It's a move that can benefit you in more ways than one.

Most people who wish to buy a home can't just purchase one outright. That especially holds true today, given that home prices are way up on a national level.

If you need a mortgage to buy a home, you may be aware that that loan isn't guaranteed. Rather, you'll need to convince a mortgage lender that you're a trustworthy borrower to get that home loan approved. And one move on your part could make it easier to get a lender to say yes.

A key step to take on the road to buying a home

The less credit card debt you have when you apply for a mortgage, the more likely you are to get approved. And so if you're eager to buy a home, it pays to work on whittling down or eliminating your credit card debt before seeking out a mortgage.

There are different factors that mortgage lenders look at when assessing home loan candidates. And paying off credit card debt can help with two of them. First, there's your credit score. A higher credit score sends the message that you're good at managing bills and paying them on time. But if you're carrying a lot of credit card debt relative to your spending limit across your various cards, it could drive your credit utilization ratio into unfavorable territory.

That ratio measures the amount of revolving credit you're using at once, and a ratio that's too high can negatively affect your credit score. Specifically, you don't want that ratio to exceed 30%. So if you have a total credit limit of $10,000 and have a balance across your cards in excess of $3,000, it could be damaging your score. This holds true even if you're timely with your minimum monthly payments.

Additionally, mortgage lenders look at your debt-to-income ratio when deciding whether you qualify to borrow money for a home. That ratio measures your monthly debt obligations relative to your income.

Generally, a front-end ratio in excess of 28% and a back-end ratio in excess of 36% will make it harder to get approved for a mortgage. Your front-end ratio is the amount of your housing debt relative to your income, and your back-end ratio is the amount of your total debt (including housing, credit cards, and other debt) relative to your income.

If you owe a lot on your credit cards, your back-end ratio might exceed the 36% mark. So if you manage to pay down some credit card debt before applying for a home loan, you'll increase your chances of mortgage approval.

A smart financial move, no matter what

Even if you're not trying to buy a home, paying off credit card debt is a smart financial choice that could save you money on interest and make it easier to meet different goals. But if you're planning to apply for a mortgage in the near term, it especially pays to try to knock out some of that unhealthy debt. Doing so might not only increase your chances of getting approved, but also make it easier to manage your mortgage payments once you become a homeowner.