This BLOG On Paying Off Credit Cards Due To High DTI And Boost Credit Scores Was PUBLISHED On July 1st, 2019
Debt to income ratios is one of the most important factors a mortgage underwriter will carefully look at when qualifying borrowers:
- High debt to income ratios is a risk that will always come up throughout the mortgage application and approval process
- When you first apply for a mortgage application, your loan officer should carefully look at income, assets, liabilities, proposed housing payments
- Loan officers should not just look at the PITI 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 are 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
In this blog, we will discuss Paying Off Credit Cards Due To High DTI And Boost Credit Scores.
Debt To Income Ratios: How Is It Calculated
FHA, VA, USDA, Conventional, and Jumbo loans all have a different maximum debt to income requirements.
- Borrowers who have a borderline tight debt to income ratios may be required to buy discount 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 Paying Off Credit Cards Due To High DTI
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 do not want you to just pay down your credit card balances and then turn around and load up your credit cards again
- If you are planning on applying for a mortgage loan in the very near future and have a higher debt to income ratios, the recommendation is to make sure to pay off all of your credit cards off
- 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 you like as well as the credit card accounts that you have closed.
If your loan originator takes your 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 or text us for faster response. Or email us at email@example.com.