Paying off credit card debt before mortgage closing date: Info you should know

by Middleton Realty, Inc. 09/10/2023

Many potential homeowners wonder about the benefits of paying off a credit card before their new mortgage closing date. While paying off debt before applying for a loan is generally a good idea, there are other ways your credit can affect your mortgage approval and terms.

Here is some basic information to know about credit card debt and a mortgage:

How new credit affects potential mortgage approval

Taking out new credit, whether it's opening a new card or retailer-specific line of credit, can negatively affect your credit score. While the damage might be temporary, timing is everything - increasing your credit limit and debt to income ratio before applying for a loan may show mortgage lenders you're too much of a risk.

Closing an existing credit card can also impact your credit score. Overall, most mortgage lenders prefer a stable, even credit history without any major, recent changes.

What credit score do I need to purchase a home?

The minimum credit score requirement for a mortgage depends a bit on the type of loan you get. For example, conventional loans not backed by government programs require a score of at least 620. While it's possible to get approval with a lower credit score, you may end up with a much higher interest rate and monthly mortgage payments.

Both FHA and VA loans offer more flexibility when it comes to credit report requirements. A government loan may only require a score of 580. However, these can come with higher interest rates as a consequence.

How long after buying a house can you use your credit?

If you want to open a new credit card, experts recommend waiting one full business day after closing at the very least. However, it's important to consider the lasting effect on your credit report. While your score can decrease quickly, it can take a long time to build back up again. Keep this in mind when making credit card account decisions after closing on a home purchase.

About the Author

Middleton Realty, Inc.

Patrick Middleton, Broker/ Owner of Middleton Realty Corp. A Jacksonville native, I obtained my real estate license in 1985 and opened Middleton Realty in 1995. My interest in real estate was spurred by a desire to invest in residential properties. This interest became a focal point of my business. For over 30 years, I have been helping people build their investment portfolios and helping home-buyers make fiscally sound decisions. My love of the outdoors, especially fishing and boating, has given me an edge in helping others who want to incorporate Jacksonville’s outstanding outdoor amenities into their personal lifestyle. Willie Inman- Real Estate Agent NACA approved, first time home buyer specialist, commercial . 904 673-1388, [email protected] Tom Burau- Real Estate Agent Certified distressed property specialist, military relocation professional. Tom works with first time home-buyers as well as exclusive beach properties and multi-unit investment properties. Contact info: 904 553-8291, [email protected]. Also on Facebook.