Appling for a mortgage – should I pay off cc bills first? or keep money in savings?

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We are about to apply for our first mortgage. Which do lenders like better – extra capital or no debts?

We have enough in our savings to pay off a car loan and credit card loans. We will still have enough for a 20% down payment. Should we wipe out those debts? or keep them (the rates are very low on both).

thanks!

8 Comments
  1. Reply
    Dart Swinger
    May 1, 2011 at 3:24 am

    Wipe out as much debt as you can. This affects your credit score, which counts for a lot with lenders.

  2. Reply
    gettingby
    May 1, 2011 at 3:41 am

    I would say you should pay off those debts! That will most definitely boost your credit rating and you are in essence starting fresh.

  3. Reply
    kimjoey
    May 1, 2011 at 3:48 am

    As long as you owe less than half of the cc limit, and have never been more than two months behind you should be fine. Save some money for your furnishings, and down payments for your home insurance and yearly taxes you will have to pay.

  4. Reply
    Tlynn
    May 1, 2011 at 4:20 am

    I would advise you to keep them just as they are now. The fact that you have the money to pay them is great! However, if the rates on the debts are low, wait to see if you qualify with those payments. If you do qualify, then you can keep the money in savings and decide to pay off the debts later….or perhaps use some of the money for things in your new home and be able to pay cash. If you have the money, you have the choice – if you pay off the debts and then need additional cash – you can’t just get it back. If you are working with a good lender, they will let you know if paying off the debts is something you need to do or not.

    retired mortgage banker

  5. Reply
    FREDDYN
    May 1, 2011 at 4:47 am

    If your savings yeilds higher rates then the credit cards interest rate, then keep the money in savings. Typically, that is not the case, as credit cards usually carry a rate equal to prime plus some percentage, and savings accounts don’t pay much more that 4% (if you are lucky). Ditto with money markets, and they way the stock market has been going, investments there have taken a huge hit.

    The number one tip on creating wealth is to pay off ALL debt, especially credit cards. I think leaders are more interested in how much debt you have and your track record for pay that off.

  6. Reply
    Sarah D
    May 1, 2011 at 5:21 am

    It depends on a number of factors. Lenders look at your income/credit score and determine what rates you are eligible for. It’s ok to have a little debt, but lenders will calculate what you owe monthly already and this will work against you if you are trying to get a loan for the maximum amount that you can. If that is the case, I would at least recommend paying off the cc debt. If you are not trying to get the maximum that you can afford, then it doesn’t really matter.

  7. Reply
    andy
    May 1, 2011 at 5:27 am

    If you have a good credit score already than you should not worry about paying off your car loan or your credit cards. If your credit score isn’t all that great than paying off your loan and credit cards should help raise your score a little.

  8. Reply
    sxymamasora
    May 1, 2011 at 5:51 am

    Pay off your debt asap.but do not close the accounts.this will raise ur credit score and lower ur debt to income ratio.shows that more is kept in than goin out of ur household.stay sweet and safe.

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