Millions of Americans are currently struggling with a large amount of credit card debt. Many of these men and women use credit cards for large purchases and as a stopgap measure for emergencies. These people are often worried that their financial growth will be stunted as a result of their debt. It is true that a large amount of credit card debt makes it more difficult for people to apply for a loan. But it may not be the end of a person’s plans for their home and life.
The metrics behind buying a house
Banks look at a wide variety of factors when deciding if an individual should qualify for a loan to buy a house. These factors all help banks determine whether or not a person has a good chance of paying off their loans. The sheer amount of a person’s credit card debt is not a factor. Rather, it is the amount relative to their income and other assets. As White Mountain Partners notes, a person who makes ten million dollars per year can easily have a million dollars of debt and receive a massive mortgage. In some cases, a few hundred dollars in debt can sink a person’s chances of ever acquiring a mortgage.
Potential pitfalls
While there is no distinct law or rule preventing a person from gaining a home loan with a large amount of credit card debt, such an application may still be unwise. A person with a large amount of debt from credit cards will most likely not have a considerable amount of disposable income. They will have to transfer some of their funds to a mortgage. Such a transfer may cause them to get behind on their payments and have to pay more and more in interest and late fees. Eventually, they may be hounded and forced into bankruptcy/foreclosure even if they meet every single mortgage payment. It is possible for people to be ruined by their credit card debt if they let it get away from them with large purchases such as a mortgage.
What to do
Anyone with a large amount of credit card debt considering a home loan should always review their finances. They should enlist a trusted adviser such as White Mountain Partners in most instances. Financial advisers help people figure out how much money they have and would be able to spend. Then, an individual needs to consult a bank and see what kind of loan they can secure and at what terms. A person may have to apply for a loan and make their pitch to a bank. They already have the parameters that they can pay for. If the bank denies their loan or offers unfavorable terms, they should withdraw their application and continue to save money and pay off their debts. Eventually, they will be able to pay off their debts and prove to the bank that they are a worthy credit risk.
Conclusion
Anyone with a large amount of credit card debt needs to have a plan to pay off that debt over a reasonable period of time. This person can incorporate buying a house into their plan in many instances. However, a home should not be a shiny object that distracts a person from getting their other debts under control. It should only be a component of the overall goal of both owning a residence and eventually securing financial peace
