Paying off credit card debt can make it much easier to get approved for a mortgage. However, you may not necessarily see the benefits of paying down those balances right away. Let’s take a look at how committing to getting debt-free prior to buying a house can impact your timeline for doing so.
It Could Take 30 to 45 Days to See a Change to Your Credit Score
Credit card companies generally report account information to the credit bureaus several hours or days after you make payment. If you make a payment once per month, you can expect to see changes to your credit score every four to six weeks. Therefore, it may be worth your while to wait until your credit score has updated. This could be especially true if your score is currently on the fringes of what a lender may deem acceptable to approve a mortgage application.
Have Your Cash Reserves Seasoned Enough Yet?
Traditional mortgage lenders typically want to see that you have a reliable source of cash reserves in the bank. Furthermore, they likely want to see that they have been in your bank account for 60 to 90 days. This is often referred to as a seasoning period. If you use your current savings to pay down a credit card debt, it could take several weeks or months to replenish those savings.
Once that happens, you will ideally wait another several weeks or months to meet a lender’s seasoning requirements. It is worth mentioning that government mortgage products such an FHA or VA loans don’t have cash reserve requirements. However, having money in the bank can make it easier to get loan approval at a favorable interest rate.
Can You Afford to Make a Down Payment?
In addition to having cash reserves on hand, you may also be required to make a down payment as part of the loan approval process. Traditional mortgages usually require down payments of 20% while government loans require down payments of 5% or less. In either scenario, you will likely need to save thousands of dollars to cover this expense and other closing costs. The folks at companies such as Tuck Associates may be able to help you learn more about how paying down credit card debt could influence your home shopping journey.
Will You Have Enough Money to Maintain the Home?
While a home inspection could reveal problems with a property, there is no way to predict when a repair or upgrade will need to be made. For instance, a roof could start to leak even if it looked fine during the inspection, and it is a repair that you can’t wait to make despite the fact that it could cost up to $10,000 to have done. Therefore, it is important that you wait to establish an emergency fund before a home purchase becomes official. A representative from a firm such as Tuck Associates could help you create a plan that helps you pay down debt without fully depleting your savings.
There is no hard rule as it relates to how long you need to wait to buy a home after paying down credit card debt. Instead, you’ll want to hold off on the purchase until you feel comfortable paying all of the costs associated with owning a home
