Can you get a mortgage with credit card debt?

In this brief blog post, we will cover if you can get a mortgage with credit card debt, how to build your credit before a mortgage application and other factors you can consider before applying for a mortgage with credit card debt.

When applying for a mortgage, the mortgage lender will be able to see all the credit accounts on your credit file. This includes your credit card accounts. This will show your repayment history on your credit cards and any balances which you currently carry.

If you have credit card debt, this doesn’t automatically mean that your mortgage application will be declined.

When looking at if you can make and keep up your monthly mortgage repayments, most mortgage lenders will look at a range of different things and how mortgage lenders will look at credit card debt will differ from one mortgage lender to another.

Can you get a mortgage with credit card debt?

The simple answer is yes you can get a mortgage with credit card debt. When assessing your mortgage affordability the mortgage lender will consider your debt to income ratio to see if you have too many debts. If your credit card debt is the main debt you have and you already have too much credit card debt which is affecting your debt to income ration then the mortgage lender may decline your mortgage application based on the credit card debt.

If you are however able to show that you can continue repaying your credit card debts then you may find that the mortgage lender may be more willing to lend to you.

When considering your debts, mortgage lenders will class each type of credit account with a specific risk rating. Payday loans may, for example, be classed as a risky debt whilst credit card debt may be classed as an okay debt. The risk rating of debts may differ from one mortgage lender to another.

Most mortgage lenders will likely not consider credit card debts as risky as long as you can show that you make your monthly credit card repayments and you will be able to continue to afford these credit card repayments towards your credit card debt after you get a mortgage.

How much does credit card debt affect getting a mortgage?

Your credit card debt will not be a significant factor when the mortgage lender considers if you can get a mortgage or not. The only point at which a credit card debt will become a significant factor for the mortgage lender on whether they will offer you a mortgage or not will be if the credit card debt is above a particular amount set by the mortgage lender in their internal scoring criteria or if the credit card debt is a major expense for you every month as you make your monthly mortgage repayment.

If you have a large amount of credit card debt then there may be some mortgage lenders who may be willing to offer you a mortgage based on the circumstances with which you accumulated the credit card debt.

How much debt can I have and still get a mortgage?

When analyzing your mortgage affordability the mortgage lender will always look to see what your debt to income ratio is. Different mortgage lenders will have their internal criteria for the debt to income ratio but a debt to income ratio of 30% is ideal but anything above this and approaching 40% may be the maximum amount of debt a mortgage borrower could have and still get a mortgage.

How much mortgage can you afford with credit card debt?

The amount of mortgage you may be able to afford will depend heavily on your monthly disposable income. If your credit card debt repayment is reducing your monthly disposable income then you may find that you are now able to borrow a much smaller amount from most mortgage lenders.

If your disposable income can only afford a mortgage which costs £500 a month then you may only be able to get a mortgage with monthly mortgage payments of £500 a month after factoring in your mortgage term and your mortgage deposit.

For the specific mortgage term and mortgage deposit you have put down you will have a mortgage amount which is fixed based on these variables. If you want to increase the amount you can borrow for your mortgage with credit card debt then you may be able to borrow a bigger amount if you increase your mortgage term( thereby reducing the monthly mortgage payments to fit under the maximum monthly mortgage repayments of £500 you can make) but the mortgage lender will likely want to see proof that you can continue to nake your monthly mortgage repayments for this increased term.

Some mortgage lenders will offer mortgage terms going up to 40 years. This may be of interest to you if you want to use this tactic and are worried about getting a mortgage with credit card debt.

In any case, you may want to seek the help of a mortgage broker who may be able to assist you in getting a mortgage with credit card debt.

Will your credit utilization affect your ability to get a mortgage?

Yes, your credit utilization may affect your ability to get a mortgage. If you have a credit card and your current balance on the credit card is above the recommended credit utilization figure of 30% then you may find that the mortgage lender may be less willing to lend to you as it may appear that you are too dependent on credit.

What if you plan to pay off your credit card debt before getting a mortgage?

Some mortgage lenders may consider this and factor this into their mortgage affordability calculations but most mortgage lenders will not do so as you may not end up sticking to your word and they could potentially give you a mortgage which you cannot afford.

Will a debt management plan affect your ability to get a mortgage?

Getting a mortgage with a debt management plan may be much harder as many mortgage lenders consider debt management plans as a form of bad credit.

Debt management plans are when you through yourself or through a third party agree to pay a portion of your debts each month. You pay the agreed portion of the debt and the creditor will forgive the rest.

Mortgage lenders view borrowers with debt management plans as borrowers who arent creditworthy.

Can credit card debt be good for a mortgage?

Having credit card debt isn’t necessarily bad or good. People always confuse having credit card debt with using a credit card to build your credit score.

You can use a credit card to build up your credit score by repaying your credit balance in full each month, you don’t necessarily have to pay the credit card minimum payment and carry a credit card balance to build credit.

If anything carrying a credit card debt from one month to the other may have a negative effect on your credit score.

Can I get a Buy to let mortgage or second home mortgage with credit card debt?

Most mortgage lenders will not offer you a buy to let mortgage or a second home mortgage if you have credit card debt but with the help of a specialist mortgage broker, you may find some mortgage lenders who are willing to lend to you.

Can credit card applications affect my mortgage application?

Yes, making too many credit card applications before a mortgage application may affect your mortgage application. In fact, making any credit application before you apply for a mortgage may ruin your mortgage application.

This happens because whenever we make a credit application the credit provider carries out a hard credit search on our credit file which leaves a mark and in some cases reduces the amount of your credit score.

Making too many credit applications in a short amount of time will also reduce your credit score and in some cases make it drop very low.

Most mortgage brokers will, therefore, advise you not to make any credit applications before applying for your mortgage.

Will missed credit card repayments affect your mortgage?

If you have missed a monthly credit card repayment then you may find that there are fewer mortgage lenders who are willing to lend to you. This is because missed payments don’t indicate to the mortgage lender that you are creditworthy.

Will late credit card repayments affect my mortgage?

Late credit card repayments may also affect your ability to get a mortgage but it may have a much smaller effect than if you missed a credit card repayment.

You may still be able to get a mortgage if you have missed your credit card repayment or if you have paid your credit card repayment late.

A specialist mortgage broker may be able to find mortgage lenders who are willing to lend to you.

I was declined a mortgage because of credit card debt, what are my options?

If you were declined a mortgage because of credit card debts then your options are to find a specialist mortgage lender who may be willing to lend to you. You may also be able to consolidate the credit card debt with a personal loan or into your mortgage if you already own the property.

How to get a mortgage with credit card debt?

If you want to get a mortgage and you have credit card debt here are a few of the things you can consider doing.

Reduce your credit utilization to below 30% so you do not appear as if you are reliant on credit to financially exist.

Build credit by registering on the electoral roll at your current or home address.

Avoid missing any credit card repayment.

Keep your credit card accounts and other credit accounts open for as long as possible.

You may want to consider paying off some of your credit card debt so you can get a mortgage. Paying off your credit card debt will reduce your debt to income ratio and potentially increase yournmortgage affordability.

Check your credit score and history by requesting a statutory credit report from the four credit bureaus. (yes, there are four credit bureaus in the UK. The one you may not have heard of is calledCrediva). You can check your credit score from all four of them through a service known as Checkmyfile.

Use a Government scheme

Government schemes help you reduce the amount of mortgage deposit you may need to put down, reduce the price of the property or create a structure that increases your mortgage affordability much sooner than it would have been.

Some of these include first-time buyer government schemes whilst others in this list are accessible to you even if you are not a first-time buyer.

Government schemes are not available to you if you are getting a buy to let mortgage.

The Government schemes include:

  • Lifetime ISA– gives you a government bonus of £1,000 if you save a maximum £4,000 a year.
  • Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
  • Help to buy equity loan– gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
  • Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
  • Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
  • Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
  • Right to buy– allows you to buy your home at a discount price.
  • Preserved right to buy– same as above.
  • Right to acquire– similar to the above.

Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.

Use a mortgage broker for your mortgage in principle

You may want to use an independent mortgage broker to help you get a mortgage on your new home.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases.

This could be over 11,000 mortgage products. This may have some advantages rather than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you based on your mortgage affordability.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle

This will allow you to shop for your home as more estate agents and sellers may take you seriously and it will also give you confidence that your mortgage is indeed a possibility before you make a full mortgage application. 

Once you have found a home you want to buy and are satisfied with the mortgage offer for your mortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document that details the features of your mortgage including how much you will pay per month.

It will also contain information on if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer.

Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it.

They will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer, and set a completion date with the seller or their conveyancer.

This will then bring an end to the conveyancing process, at which point you will receive the keys to the house and move in.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.