Credit Card Balances And Debt To Income Ratios

Gustan Cho Associates

Credit Card Balances And Debt To Income Ratios

Effects of credit card balances and debt to income ratios:

If you are a home buyer or are a homeowner trying to refinance their home loan, your credit scores is not the only thing you need to worry about. Credit card balances and  Debt to income ratios  is equally as important.  One of the quick fixes to high debt to income ratio solutions are paying down credit cards.  Your minimum payment due on your credit cards will be counted towards debt to income calculations. Credit card balances and debt to income ratios go hand in hand. If you are a high debt to income ratio mortgage loan applicant and you barely meet the maximum debt to ratios allowed to qualify for a mortgage loan, you may want to consider paying down your credit cards prior to formally applying for a mortgage loan.

Credit Card Balances And Debt To Income Ratios

Part of your credit scores is the amount of available credit you have available.  The more credit available you have on your credit cards, the higher your credit scores will be.  If you have credit balances that are close to your credit limit, then your credit scores will suffer.  Just by paying down or paying off your credit card balances, your credit scores will greatly improve.

Mortgage Guidelines On Paying Down Credit Cards To Qualify For Mortgage During Mortgage Process

There are many cases where a mortgage loan borrower barely meets the maximum debt to income ratio requirements.  For conventional loans, the maximum debt to income ratio caps at 45% debt to income ratio.  For FHA loans, the maximum back end debt to income ratio caps at 56.9% dti.  If you barely meet the debt to income ratio caps and have a bunch of credit cards that have balances, any unexpected increase in your debt to income ratios will automatically disqualify your mortgage approval.  For example, if you budgeted $100 in monthly homeowners insurance payments and that goes up by $150 and that extra $50 in the increase of homeowners insurance exceeds the maximum debt to income ratios permitted, you need to reduce other monthly payments in order for you to meet the maximum debt to income ratios allowed.  The best solution to solve the debt to income ratios and reduce your monthly debt payments is by getting rid of your minimum credit card payments.  The issue is if you have paid off your credit cards prior to your mortgage application and approval process, then you do not have to close out your credit cards.  However, if during your mortgage application and mortgage approval process you need to pay off your credit cards so you can meet the debt to income ratio requirements, both FHA and Fannie Mae will require you to pay off your credit cards and after paying off your credit cards, you need to close out your credit card accounts.  Proof that the credit card accounts are paid off and that the credit cards are closed will be required and a new credit report showing that the credit card balance has a zero balance and that the credit card account is closed is required and needs to be reflected on the credit report through a credit supplement .

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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