Debt To Income Ratios
Debt to income ratios is one of the most important factors a mortgage underwriter will carefully look at when qualifying for a mortgage loan applicant’s mortgage application and will always come up throughout the mortgage application and approval process. When you first apply for a mortgage application, your mortgage broker should carefully look at your income, your assets, your liabilities, your proposed housing payments which will not only consist of principal, interest, taxes, and insurance but also double check to see if the proposed home purchase is in a flood zone or if there is a homeowners association dues. If you are on the edge and barely qualify for the necessary debt to income ratios requirement, a slight increase of your expenses or decrease in your income can potentially kill your mortgage loan application and you may not be able to close on your home.
Debt To Income Ratios: How Is It Calculated
FHA loans, VA loans, USDA loans, Conventional loans, and Jumbo mortgage loans all have different maximum debt to income requirements. Mortgage loan borrowers who have borderline tight debt to income ratios may be required to buy down points to qualify for a lower mortgage rate or close out credit cards accounts so the minimum credit card payments are not calculated in qualifying the debt to income ratios.
Why Do Mortgage Underwriters Want Me To Close Out Credit Card Accounts After I Paid Them Off?
FHA and Fannie Mae require that all credit card account balances that are paid off prior to the mortgage loan application process and approval process needs to be not only paid off but also closed out. HUD and Fannie Mae does not want you to just pay down your credit card balances and then turn around and load up you credit cards agains. If you are planning on applying for a mortgage loan in the very near future and have higher debt to income ratios, the recommendation is to make sure to pay off all of your credit cards off and make sure the credit bureaus have zero balances reported on your credit report if you do not want to close out your credit cards.
After you close on your mortgage loan, there is no restriction on why you cannot open your credit cards. You can go ahead and open up as many credit cards as your like as well as the credit card accounts that you have closed.
If your mortgage loan originator takes your mortgage loan application to Freddie Mac, Freddie Mac does not have this rule and you can just pay off your credit cards and not pay off the balance. Please consult with your mortgage loan originator or contact me at www.gustancho.com or 262-716-8151.