Can I Buy a House With Credit Card Debt?

You can buy a house with credit card debt. Credit card debt in itself will not keep you from owning a home; how you manage your credit card debt can. Credit cards, and how you use them, are a large part of your overall credit history and score. Responsible use of a few cards shows that you handle credit well, and can earn you a higher score. Irresponsible or excessive use of credit cards demonstrates that you may not handle money or financial obligations well, and can earn you a lower credit score.


Paying down credit cards that have balances above 50 percent of the credit limit--and keeping them there--will help improve your credit score within six months. Paying off credit cards to eliminate or lower minimum payments from your debt-to-income ratio will help with loan approval. The higher your credit score and the lower your debt-to-income ratio, the better loan terms you will be able to get. You will save money on your mortgage over the long term, and find that getting credit becomes easier in general.

Debt-to-Income Considerations

Conventional loans typically require ratios of 28 on the front end and 36 on the back end, while the FHA requires 29 on the front and 41 on the back. What that means is that your new mortgage payment cannot be more than 28 to 29 percent of your monthly gross income. Your total debt cannot be more that 36 to 41 percent of your income. Any amounts over those percentages could disqualify you from getting a mortgage loan--though there are subprime lenders that will accept higher debt ratios, but charge significantly higher interest rates.

Lenders Requirements 

Lenders not only use your credit score as an indicator of your overall creditworthiness, but they also use your debt to determine your approval as well. Every lender uses a debt-to-income ratio as part of the loan approval process. This ratio compares your new monthly mortgage payment to your gross or pre-tax monthly income, to get a percentage called the “front end ratio.” Lenders also take your set monthly debts, including all installment loan payments, credit card minimums, additional rent or mortgage payments, and obligations such as child support, and add them to the new mortgage payment. They then compare that amount to your monthly income to get what they call the “back end ratio.” These numbers must fall within certain parameters, which vary according to the loan program.

Significance of Credit Card Debt

With credit card debt, carrying a balance that is a large percentage of your credit limit is frowned upon because it shows that you may spend more than you can easily repay. This is especially true if it is a recurring pattern over a long period, if you pay only your minimum amount or if you have several cards that are running high balances. The dollar amount of the balance is not as important as the percentage of the available balance. Three maxed-out cards with $500 credit limit hurt you more than carrying a $1,500 balance on a card with a $5,000 limit. Your credit score will suffer until you pay those balances down, and you will have trouble getting a mortgage with the best terms.

Credit Score History

Several things influence your credit score: your credit account balances versus your credit limit, how many credit accounts you have, your payment history on those accounts and how long your credit accounts have been open. Credit reporting agencies and lenders want to see that you have a long record of accomplishment on your credit history as an indication of how you handle credit over time. They look for prompt payment on all accounts and for balances kept below 50 percent of the credit limit--preferably in the 20 to 30 percent range, according to Ask Mr. Credit Card. Lenders also do not want you to have so many accounts that you could easily overextend yourself with available credit. A maximum of two to three credit cards, along with a car payment and a mortgage, is ideal.