Should I Wait to Apply for a Mortgage Until I Pay Off Debt?
Today we are talking about the delicate balance of keeping debt or paying off debt prior to applying for a mortgage. It makes sense that buyers would want to increase their credit score before applying for a mortgage. One would think if they paid off all of their debt and then applied for their mortgage this would ensure their credit was in perfect standing, but they might be wrong.
It sounds counter-intuitive, right? Ironically, some of the things that you would normally do to place you in a great financial position (under normal circumstances) are not always the right decision when considering applying for a mortgage.
For instance, paying off a long-term loan, closing a major credit card or paying off a car loan will affect your long-term credit history. Lenders like seeing this sort of activity. It might actually be better to put any extra money toward a down payment rather than paying off the car.
There are some things you can do to help yourself when applying for a mortgage; do not let anyone pull your credit outside of the lender you are considering using, pay everything on time, do not close any accounts and do not apply for any new credit. To make it easy on yourself the best thing you can do is to not make any significant financial changes unless you absolutely have to.
Start cleaning up your credit early. Check your credit report if you have never done so. You are free to pull reports from all three major bureaus at no cost at annualcreditreport.com. If you discover any discrepancies, start fixing them immediately.
Some poor scores, even if they are due to inaccurate reporting can take a while to clean up. Before doing this always talk to your trusted mortgage professional. Paying off collections could actually hurt your scores in the short term.
One of the best ways to make the decision about your individual financial situation is to consult with a mortgage lender who can help you with the process from start to finish. Please call or email us with any questions that you have.
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