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Affinity Title

MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
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  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
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CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. How Much Credit Card Debt Is OK When Buying a Home?

MORTGAGE

How Much Credit Card Debt Is OK When Buying a Home?

What you'll learn: How credit card debt and credit card utilization impacts buying a home

EXPECTED READ TIME: 5 MINUTES

February 22, 2021

While credit card debt has decreased overall in the United States recently, according to the New York Federal Reserve, you may still be one of the millions of Americans who has credit card debt. Credit card utilization, also known as credit card usage, is the amount of credit you're using compared to your available credit, and it factors significantly into most credit scores.

For example, your FICO® scores are calculated using much of the information on your credit reports. Credit usage accounts for 30% of these scores.

Rod Griffin, Senior Director of Public Education and Advocacy for Experian, explains, "The most important thing to know about credit utilization is that you need to keep your balances as low as possible to maximize your credit scores."

Here’s a look at points to consider if you plan on buying a home when you have credit card debt.

What credit score do I need to get a mortgage?

More than one credit score is taken into account, so the actual scores you need depend on the scoring model your lender uses. For instance, PenFed uses 620 credit scores in most cases when reviewing your application and considering mortgage approval. More important than understanding each of the hundreds of credit scores is knowing your credit history, which appears on your credit reports.

According to the New York Federal Reserve, "the median credit score of newly originating borrowers increased in the first quarter [2020] for mortgages, to 784, up 11 points from the previous quarter and 25 points from a year ago [2019]." This report is based on the Equifax Risk score 3.0.

Various options are offered for mortgages, including conventional fixed-rate mortgages, VA home loans, and jumbo home loans. There’s no magic number when it comes to the credit score needed for mortgage approval, but generally, a lower amount of credit card utilization and lower amounts of credit card debt may potentially help when you apply for a mortgage.

What should I do if I have credit card debt?

"Paying down your credit card balances will help improve your credit scores relatively quickly. When you plan to buy a home, reduce credit card spending, and pay down your balances as much as possible. Save unnecessary purchases until after you have the house keys in hand. Ideally, you should pay your balances in full each month. The lower your balances, the better for your credit scores," shares Griffin.

Preparing as early as possible may help make reducing your debt seem more manageable, so it's best to start a year or so before looking to request preapproval or approval for a mortgage.

Lowering your credit card balances can help reduce your credit card usage, given you're not taking on other types of debt at the same time or racking up charges on your cards after you pay off the debt.

Reducing your credit card utilization, making timely payments, and using credit responsibly are crucial factors in maintaining a solid credit history and working toward credit scores that’ll show a potential lender you're likely to pay your mortgage on time.

What other factors might help you get a mortgage?

Credit card utilization is a significant factor in credit scores that can impact your ability to get a mortgage or get a lower interest rate. Other factors that also impact mortgage approval and the interest rate offered often include:

  • Credit history
  • Income
  • Amount of your down payment or Loan-to-Value ratio
  • Home purchase price
  • Property type
  • Occupancy — whether you'll be using the home as your primary residence or an investment property

In general, it's also a good idea to not apply for any other new credit like an auto loan, new credit card, or student loan when looking to get a mortgage. New credit is a small factor in most credit scores, so lenders may see recent applications or accounts on your credit report as an added risk to default on your mortgage

How long does it take for my credit card payments to appear on my credit report?

According to Experian, most lenders update your account information once a month, so you should allow 30-45 days for credit card payments to show on your credit reports. As previously mentioned, the more time you give yourself to pay down credit card debt, the more time you’ll have for your positive actions to help show that you’re a responsible borrower.

How do you apply for a mortgage once you pay down your debt?

You can get started with preapproval and pull a copy of your credit report to make sure you don't have surprises when you apply for a mortgage. You'll also need to compile paperwork, including your W2s and any tax forms, recent tax returns, and bank account statements.

You can also learn more by researching different types of mortgage options and speaking to your loan officer.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

Creating Your Home Buying Budget

How much should you budget when buying a home? PenFed Credit Union offers a list of all the expenses and costs you may encounter as you complete closing y our home.
Couple calculating a budget together

10 Things New Homebuyers Need to Know

There are a lot of things new homebuyers need to know. Here are 10 things you should consider when buying a home.
couple unpacking and looking out window of home

Understanding Your Credit Score for a VA Loan

What are the credit scores needed for a VA loan? Can I get a VA loan with poor credit? Is a VA loan better if I have bad credit? PenFed has all the answers.
man researching credit score on mobile phone

All About VA Loans and Your Credit

Learn how your credit affects getting a VA mortgage. PenFed Credit Union answers what credit score is good for a VA loan.
couple shaking hands with real estate agent
image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of December 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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