WHY MINIMUM PAYMENTS ON CREDIT CARDS MIGHT KILL YOUR DREAMS OF HOME OWNERSHIP
Making only the minimum payment on your credit cards could have the maximum impact on your home ownership plans, it has been revealed.
Government-backed lender Fannie Mae has decided it will delve a little deeper into the financial affairs of borrowers who apply for a loan. Most lenders look to see if there have been defaults and arrears on your credit card, of course. But now Fannie Mae have recently revised their procedure on checks made upon customers credit cards, to include looking to see whether only minimum payments have been made on the account.
This could be bad news for some would be home owners currently juggling credit cards and other debts and just about managing to stay afloat.
David Reiss is the research director of the Center for Urban Business Entrepreneurship.
He explains that when there are two candidates with identical credit scores, then whether they make more than the minimum payment could be a deciding factor in gaining acceptance for a mortgage.
Clearly, payments in full every month will send you to the top of the queue for a mortgage, but what if you can’t manage that?
Exactly how much of your debt should you be paying off to keep Fannie Mae happy then?
Although no one is quite sure, it seems likely that it would not have to be a huge amount, just enough to keep you over the minimum payment.
Some have speculated that clearing 30% of the balance may be enough to secure a loan on a home from Fannie Mae.
Cross Country Mortgage loan officer Michael Rosenbaum agrees that making more than this amount in repayments should help improve the chances of a credit application.
Paying over the minimum amount may seem like a big ask for some, but it could be a gift in disguise for anyone who has a checkered history with credit in the past.
Making more than the minimum payment could help rescue a credit rating or redeem an applicant in the eyes of a lender.
This is because data shows that people making full payments on their cards each month present a far less of a bad risk, than those making only the minimum payment every month.
Either way, it is something to bear in mind before applying for a loan on your dream home.