Should i pay off my credit card?

Question

Hi BP Community,

Ive been looking into purchasing a 4 unit using the FHA loan. Before getting prequalified, would it better my chances to pay my credit card/ loans down? or does that even matter. I wanted to jump into this but wanted to get some input on this. I could pay off my bills with some cash that I have or would you use that cash towards the purchase.

I would still have enough to pay my 3.5% after paying off my loan/ credit cards.

Thank you in advance!

Aloha,

Aaron

Michael Cohen · Answer

@Aaron Cayabyab - talk to your lender. Some people need to pay down credit cards in order to improve their credit score and/or DTI to increase their purchasing power. Others need the cash for closing costs so it's not worth it. Your situation is unique and deserves a specific-to-you answer.

Clyde Stackhouse · Answer

Hey Aar on!

I'd say this is completely up to you. I'd say if they aren't interest-free CC's than I would say pay them off as you are throwing away 20-30% on that borrowed money. Banks when underwriting Home loans look at a lot of factors Credit Score, Debt to Income, total outstanding Debt etc.  For me and my wife, we like to keep our Debt to Income as low as possible which has allowed us to buy two homes within a year (1 FHA,1 Conventional). Either way, a large factor that they liked about us was our Credit Score and Debt to Income.

Hope that helps but ultimately it's up to you! Either option will kind of look the same to the Bank (Savings = 20K - debt=5k = $15k 'Cash' or Savings = $15k - Debt $0 = $15k Cash). This is just my experience thus far, still pretty new in the REI world. Good luck!!

Matt K. · Answer

Talk to your loan officer or mortgage broker and they can give you a meaningful answer. You could be better served by the cash vs paying it off just as an example...