Debt To Income Ratio During Mortgage Process

Mortgage Loan With Bad Credit

Gustan Cho Associates

If you are planning on applying for a home purchase loan or a refinance mortgage loan, make sure that you have your credit card balances paid off.  There are strict debt to income ratio requirements mortgage loan applicants need to adhere to.  Maximum debt to income ratio caps on conventional loans is 45%.  Maximum debt to income ratio caps for FHA loan programs are capped at a maximum of 56.9%.  If you qualify with these debt to income ratio parameters but during the mortgage process your debt to income ratio exceeds the maximum allowed, one of the ways you can still qualify for a mortgage loan and for your your mortgage loan to proceed to get a clear to close issued is to solve the debt to income ratio problems.  One of the best solutions in lowering debt to income ratios is by paying off credit card debt.  By paying off the credit card balances, you eliminate the minimum monthly credit card payments which will lower your debt to income ratios.

Paying Off Credit Card Balances To Lower Your Debt To Income Ratios

If for some reason your debt to income ratios go up during the mortgage approval process due to having a larger monthly housing payment or overall monthly payment due to a larger than expected homeowners insurance premium, higher interest rate, higher homeowners association dues, or higher than expected flood insurance, one of the easiest solutions to overcome this problem is to pay off existing credit card balances.

When a mortgage underwriter suggests that you need to pay off certain credit card balances off in order to have your debt to income ratio in line with the maximum allowed per HUD or Fannie Mae guidelines, the mortgage underwriter may request that once you pay them off that you also close out the credit card accounts.  This is very common for a mortgage underwriter to request and it may also state per DU FINDINGS that you pay off and close out existing credit card accounts after you pay off the  balances.

Can I Re-Open My Credit Card Accounts After I Close On My Mortgage Loan?

There is nothing on the mortgage note that refrains you from re-opening your credit card accounts that you needed to close out to qualify for your mortgage loan.  The minute you close on your mortgage loan, you can contact your credit card company and see if they will re-open the credit card accounts you have closed.

Make Sure You Have Lower Debt To Income Ratio Prior To Applying For A Mortgage

You do not want to be maxed out on your debt to income ratios when you are applying for a mortgage loan.  Make sure that you have sufficient room in your debt to  income ratios where if some line items do turn out to be more than anticipated that you do not surpass the debt to income ratio caps.  Going over the debt to income ratio caps during the mortgage loan approval process can cause delays in mortgage closings and if you do need to pay down or pay off your credit card balances, then you might be forced to close out the hard earned payment history of your credit card accounts.

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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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