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How Much Is Too Much Debt to Have When You’re Looking to Buy a House?

Martin Eiden Team | June 6, 2020

In an ideal world, you would be debt free when purchasing a home. This allows the following:

Higher Credit Score:

The higher the credit score, the lower your mortgage interest rate will be.
Boards of co-ops (and sometimes condos) will have no issue with your credit.

Greater purchasing power as debt may prevent you from borrowing as much as you wanted.

However, we live in a pragmatic world. As such, I advise the following strategy with debt when buying:

Credit Cards/Store Cards:

Pay them off before applying for a mortgage.
Credit card debt is frown upon co-ops and condos. You could be turned down because of it.
Do NOT max out your cards after you receive your mortgage commitment letter and board approval. Banks run everything one more time before the closing. People have been denied a mortgage after they maxed out their cards buying furniture for the new home prior to closing.

Back Taxes/Liens:

Definitely pay off.

Auto Loans:

Ideally not great but "part of life" in some markets. In urban centers such as NYC, a question may come up as to why you need a car.

Student-Deft:

Perhaps the only "good debt" with caveats. Having $200,000 in debt from med school and you are a doctor is different than $200,000 in debt from a fine arts major and you work at a coffee house.