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Available Credit and Mortgages

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JSS3
Valued Contributor

Available Credit and Mortgages

I was speaking to my mom, and she said that if you have a lot of open credit(even if the lines are dated back 20 years),when you go for a mortgage, they will tell you to close them and reapply after the closing. Is this true? I've only read on here that people shopping for mortgages should not apply for new credit 2 yrs prior. Nothing about them forcing you to close established credit. 

 

If a person has almost 300,000 in credit limits, and makes approx 55,000/yr, and has had those limits for years, can they tell you to close them because open credit is considered debt? I mean, it seems outrageous. Closing older lines will lower your AAoA along with taking away your thick credit file. 

 

I really hope the rule only pertains to new credit prior to getting a mortgage.

Message 1 of 10
9 REPLIES 9
Anonymous
Not applicable

Re: Available Credit and Mortgages

I can't answer all your questions, but here's what I can say. Having 300K in available credit with 55K income could be looked at as a risk for a lender. You could easily put yourself 300K in the hole and then be unable to pay your CC and mortgage. Also closing older cards won't impact AAoA or take away from your thick file. But yes opening new cards before a mortgage isn't good because of the inquiries, new accounts, and lower AAoA. 

Message 2 of 10
JSS3
Valued Contributor

Re: Available Credit and Mortgages


@Anonymous wrote:

I can't answer all your questions, but here's what I can say. Having 300K in available credit with 55K income could be looked at as a risk for a lender. You could easily put yourself 300K in the hole and then be unable to pay your CC and mortgage. Also closing older cards won't impact AAoA or take away from your thick file. But yes opening new cards before a mortgage isn't good because of the inquiries, new accounts, and lower AAoA. 


If I close my account, it will fall off after 10 yrs. 

 

When I opened my credit, it was with a distinct goal to build and keep my cards for as long as lenders would allow me to(or until I outgrew them). I took the inquiry and AaOA hit with that set goal in mind. I don't ever plan on closing accounts that I've grown. I've pruned cards in the past, and the rest of these, I'm set with until I can no longer manage all 40 accounts. 

Message 3 of 10
Anonymous
Not applicable

Re: Available Credit and Mortgages

 


@JSS3 wrote:

@Anonymous wrote:

I can't answer all your questions, but here's what I can say. Having 300K in available credit with 55K income could be looked at as a risk for a lender. You could easily put yourself 300K in the hole and then be unable to pay your CC and mortgage. Also closing older cards won't impact AAoA or take away from your thick file. But yes opening new cards before a mortgage isn't good because of the inquiries, new accounts, and lower AAoA. 


If I close my account, it will fall off after 10 yrs. 

 

When I opened my credit, it was with a distinct goal to build and keep my cards for as long as lenders would allow me to(or until I outgrew them). I took the inquiry and AaOA hit with that set goal in mind. I don't ever plan on closing accounts that I've grown. I've pruned cards in the past, and the rest of these, I'm set with until I can no longer manage all 40 accounts. 


I guess I should've been more specific. Since you're asking about a mortgage, my answer was directed for the near future. And in the near future it will not impact your AAoA. In 10 years when it falls off your reports, it will. 

Message 4 of 10
me12345
Frequent Contributor

Re: Available Credit and Mortgages

I have NEVER had to have anyone close any credit Tradeline unless they were balances that were being paid off in order to bring the DTI down to within guidelines....NEVER one with a Zero balance.

 

Mortgage qualifying is all about the FICO score and the DTI, not the inquiries (unless the inquiries bring the score down below the threshold of the product that your tying to qualify for) You will just have to show if you opened any accounts or not, for ant inquiries listed in the last 180 days.

 

Thanks,

VA & FHA down to 550...
Licensed Senior Mortgage Loan Officer in the states of Arizona & California
Specializing in VA, FHA, USDA & Conventional loans. My company is also licensed in 12 states, Arizona, Colorado, Nevada, California, Oregon, Washington, Utah,
Alaska, New Mexico, Texas, Illinois and Florida
Message 5 of 10
JSS3
Valued Contributor

Re: Available Credit and Mortgages


@me12345 wrote:

I have NEVER had to have anyone close any credit Tradeline unless they were balances that were being paid off in order to bring the DTI down to within guidelines....NEVER one with a Zero balance.

 

Mortgage qualifying is all about the FICO score and the DTI, not the inquiries (unless the inquiries bring the score down below the threshold of the product that your tying to qualify for) You will just have to show if you opened any accounts or not, for ant inquiries listed in the last 180 days.

 

Thanks,


Did you have hundreds of thousands of open credit lines before applying for a mortgage?

 

How I understood what was said---- is that having that much(even when opened waaaay before 2 years) factors into your DTI ratio because it's potential debt. Just having access to that much credit and it being seen as debt(even with zero balances). I am hoping my mom was wrong on this as she did not have hundreds of thousands worth of credit when buying her houses. 

 

If the only requirements are to have a decent score, low debt, and no new apps within 2 yrs, that would be wonderful. The thought that they could tell you to prune old lines for a more favorable decision was what worried me. I live in a house that my ex-husbands name is on. When we got it, we were not married so I couldn't go on it. Now we're divorced and I'm still not on it. So I don't own a home. However, I may need to go mortgage shopping in the future. I have 300,000+ in credit currently with a very modest income. I am not getting rid of my cards. I have an attachment to them. Either the creditors will have to end the relationship, or I get older and not want to manage so many. 

Message 6 of 10
me12345
Frequent Contributor

Re: Available Credit and Mortgages


@JSS3 wrote:

@me12345 wrote:

I have NEVER had to have anyone close any credit Tradeline unless they were balances that were being paid off in order to bring the DTI down to within guidelines....NEVER one with a Zero balance.

 

Mortgage qualifying is all about the FICO score and the DTI, not the inquiries (unless the inquiries bring the score down below the threshold of the product that your tying to qualify for) You will just have to show if you opened any accounts or not, for ant inquiries listed in the last 180 days.

 

Thanks,


Did you have hundreds of thousands of open credit lines before applying for a mortgage?

 

How I understood what was said---- is that having that much(even when opened waaaay before 2 years) factors into your DTI ratio because it's potential debt. Just having access to that much credit and it being seen as debt(even with zero balances). I am hoping my mom was wrong on this as she did not have hundreds of thousands worth of credit when buying her houses. 

 

If the only requirements are to have a decent score, low debt, and no new apps within 2 yrs, that would be wonderful. The thought that they could tell you to prune old lines for a more favorable decision was what worried me. I live in a house that my ex-husbands name is on. When we got it, we were not married so I couldn't go on it. Now we're divorced and I'm still not on it. So I don't own a home. However, I may need to go mortgage shopping in the future. I have 300,000+ in credit currently with a very modest income. I am not getting rid of my cards. I have an attachment to them. Either the creditors will have to end the relationship, or I get older and not want to manage so many. 


As a Loan Originator, Potential debt has never factored into someone qualifying or not....a Zero balance is NOT going to have any bearing of your DTI....I would focus on having as little debt as possible, along with the highest FICO score and Income possible, in order to maximize your potential purchase power.

VA & FHA down to 550...
Licensed Senior Mortgage Loan Officer in the states of Arizona & California
Specializing in VA, FHA, USDA & Conventional loans. My company is also licensed in 12 states, Arizona, Colorado, Nevada, California, Oregon, Washington, Utah,
Alaska, New Mexico, Texas, Illinois and Florida
Message 7 of 10
StartingOver10
Moderator Emerita

Re: Available Credit and Mortgages

Agree 100% with me12345^^.

 

Every once in a while a poster comes on here and says that they were "forced" to close some open TL's with zero balance in order to get a mortgage with a particular lender.  However that is possibly an individual lender overlay.  I have never seen it in real life with the lenders I use with my clients and I have been in the real estate business for well over 30 years. 

 

As to not having inq's 2 years before applying for a mortgage - that is not a real requirement by any lender I've worked with at all.  What lenders don't want to see is a run up of debt.  The reason some people recommend to not apply for any credit 6 months prior to your mortgage application is because your score will take a dip and it could hurt your score enough on a boarderline application to cause either a denial (rare) or a delay until your score recovers to meet the minimum score requirements (more likely).  

Lenders usually want a simple LOX for inqs you do have on your report within X days of application (90 to 180 days is typical IME). 

Message 8 of 10
JSS3
Valued Contributor

Re: Available Credit and Mortgages


@me12345 wrote:

@JSS3 wrote:

@me12345 wrote:

I have NEVER had to have anyone close any credit Tradeline unless they were balances that were being paid off in order to bring the DTI down to within guidelines....NEVER one with a Zero balance.

 

Mortgage qualifying is all about the FICO score and the DTI, not the inquiries (unless the inquiries bring the score down below the threshold of the product that your tying to qualify for) You will just have to show if you opened any accounts or not, for ant inquiries listed in the last 180 days.

 

Thanks,


Did you have hundreds of thousands of open credit lines before applying for a mortgage?

 

How I understood what was said---- is that having that much(even when opened waaaay before 2 years) factors into your DTI ratio because it's potential debt. Just having access to that much credit and it being seen as debt(even with zero balances). I am hoping my mom was wrong on this as she did not have hundreds of thousands worth of credit when buying her houses. 

 

If the only requirements are to have a decent score, low debt, and no new apps within 2 yrs, that would be wonderful. The thought that they could tell you to prune old lines for a more favorable decision was what worried me. I live in a house that my ex-husbands name is on. When we got it, we were not married so I couldn't go on it. Now we're divorced and I'm still not on it. So I don't own a home. However, I may need to go mortgage shopping in the future. I have 300,000+ in credit currently with a very modest income. I am not getting rid of my cards. I have an attachment to them. Either the creditors will have to end the relationship, or I get older and not want to manage so many. 


As a Loan Originator, Potential debt has never factored into someone qualifying or not....a Zero balance is NOT going to have any bearing of your DTI....I would focus on having as little debt as possible, along with the highest FICO score and Income possible, in order to maximize your potential purchase power.


Thank you so much for this. It's exactly what I was looking for from someone who is in the position to know. 

Message 9 of 10
JSS3
Valued Contributor

Re: Available Credit and Mortgages


@StartingOver10 wrote:

Agree 100% with me12345^^.

 

Every once in a while a poster comes on here and says that they were "forced" to close some open TL's with zero balance in order to get a mortgage with a particular lender.  However that is possibly an individual lender overlay.  I have never seen it in real life with the lenders I use with my clients and I have been in the real estate business for well over 30 years. 

 

As to not having inq's 2 years before applying for a mortgage - that is not a real requirement by any lender I've worked with at all.  What lenders don't want to see is a run up of debt.  The reason some people recommend to not apply for any credit 6 months prior to your mortgage application is because your score will take a dip and it could hurt your score enough on a boarderline application to cause either a denial (rare) or a delay until your score recovers to meet the minimum score requirements (more likely).  

Lenders usually want a simple LOX for inqs you do have on your report within X days of application (90 to 180 days is typical IME). 


Thanks to you aswell. You both clarified the misconceptions for me. 

Message 10 of 10
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