Should my fiancee and I pay off our credit card debt before we purchase a new home?

Question

My fiancee and I have approximately $30,000 in credit card debt (mostly his).  He thinks that we should pay off all that debt and put a smaller down payment down on a home, rather than using all our money for the down payment.  I argued that we should not worry TOO much about the credit card debt and take care of it another way, such as re-financing our mortgage in several years and using that cash to pay off the credit card debt (since the interest rate would be much lower).  Any suggestions?

Answer 1

Yea, he would. . . . .   If you already have 20% down, then I'd focus on paying the remainder of your debt to below 1/2 of the credit limits.   Don't EVER refinance to pay off your credit card debt or auto loans.  That is dumb.   Just pay it off and stop using your credit cards.  Plus if you do pay off the cards don't close them.  That will hurt you.   The down is MORE important to get a good FIXED rate now.  Do that.

Answer 2

I personally would pay off the cards and put down less money if you have the credit to qualify for 100% financing.

To avoid paying mortgage insurance, you can do two mortgages- an "80/20" where your first is 80% of the sales price, and the 20% 2nd mortgage covers the rest. The rate you can get on that 20% 2nd is going to much better than the credit card rates, I'm sure. Plus, you can deduct the mortgage interest when you file your taxes!

Also, paying off those cards will make your debt to income go way down, which looks much better to mortgage companies.

Good luck!

Answer 3

By paying them down to below 30% of the limits, or paying them off you increase your FICO score in two ways, first you do not owe that much, second you reduce your credit to debt ration, the higher FICO score will save you in interest rates for the term of the loan.  STOP thinking about refinancing, or home equity loans that is why so many people are facing foreclosure right now, build up equity in your home, and keep building it in the event of an emergency.

Answer 4

I think your fiance is correct.  Paying off what you have would put you in a better financial condition for purchasing your home.  Paying off your cards, saving for the down payment plus what you need to furnish it would be much wiser choice.  Then you'll also possibly have money to stick in savings for when something needs fixing or replacing.
Refinancing your home in a few years to pay off credit cards would only lengthen the time you owe on the cards - turning short term debt into long term debt.  I never recommend doing that.  It may be a lower rate but when you stretch it out to 30 years, it doesn't save you money - especially when you add in another set of closing costs adding thousands of dollars to what you repay.  And if rates increase on your entire balance, that you repay is even more.  
I'd have to side with your fiance to repay the credit cards first, as fast as you can, and be better off in the long run by doing so.
Also some unsolicited advice (lol) - when you do purchase your home, don't go for the most expensive you can buy or you could end up "house broke".  You want to have some money left over for a rainy day (and not having so much credit card debt also falls into this category).  Live to be comfortable and not from paycheck to paycheck and you'll be much, much more happy all the way around.