obtaining mortgage with high utilization

[timberwolf]

We are planning to buy a house from a family member this fall. we should have about 50k in equity in our home now. new purchase price will be about 165k. However i have a couple of credit cards with high balances. I could put 20% down with our equity and use the rest to pay credit cards. We also should be able to pay down about 8-10k by the time we buy. which would put all credit cards to zero except maybe one with a balance (after using equity when we sell). Is it possible to get a mortgage with high utilization on a couple cards but use equity to pay them off for closing? total credit utilization about 50%

current mortgage scores are 680,640,660 

note: nothing negative on my credit report except high utilization. never missed a payment or been late in my life. just bad cc debt that i've been trying to get out of.

[ShanetheMortgageMan]

It's certainly possible to get approved with high utilization.  The primary negative impact of high utilization is reducing your credit scores and most mortgages terms are based on your credit score, so you might be able to improve your scores by paying them down by $8-10k, waiting until they report and then having your credit checked at that point.

What are each of your cards credit limits & balances?

[timberwolf]

thanks, i used to have mid 700's pre covid.

currently at a 77% total utilization. i have a few cards at individual utilization somewhere in the 90% range, a few less than 30% and a handful of 0 balances. I'm obviously most concerned about the few near their max. the two I will not be able to pay off by the time we are moving is a discover at 15,000 out of 16,500 and citi (0% interest) 8,000 of 10,000.( I will be paying off the other few cards over the next few months.)

We have updated our home and are expecting at MINIMUM 50k of equity in our pocket (after closing fees) so i would like to at least pay off discover with some of that and put 20% down on about 165k house. our DTI would be around 38% after paying discover, less if i also pay off a small loan prematurely as well. Just want to get the scores up as much as possible to make sure we will get approved!! High utilization on those cards are the only thing hurting my score. 

[ShanetheMortgageMan]

So you'll need $33k + closing costs if you want to put 20% down on the new purchase.  Not sure where you are located, but on that sales price closing costs can vary from $4k-$10k.  That leaves you with $7k-13k remaining to pay down the two cards you mentioned.  What is the interest rate on the Discover?  How long is the 0% rate on the Citi card in effect for?

[timberwolf]

located in indiana. the discover is at 24%. citi has about a year left of 0%. I would be able to tackle that after moving though. I'm hoping (and assuming) we will have more equity but i budget for less instead of expecting more and not getting it! We will also be purchasing a house that will be valued well over our purchase amount, it is in the process of being gutted and remodeled inside and out. Purchasing from family and they are not making money on this sale. It will be valued at 220k+ not sure if that counts as automatic equity or not. Thanks!

[ShanetheMortgageMan]

That Discover rate is high, you're being charged $300/mo in interest for that $15k.  If it was me I'd throw anything extra towards that as it'll free up monthly cash flow to tackle your other cards.

[rileydude]

You want to bring those cards..especially the Discover card balance down to 88.9% of individual utilization..anything above is considered maxed out, and you are penalized with losing a good chunk of points on your FICO score for carrying that balance. Again..if you have any cards over that bracket..I would suggest you bring it down to like 88%.