DTI vs Utilization

[EaglesFan2006]

When it comes to mortgage loans, what impact does your credit utilization have assuming you meat the DTI requirements with most lenders?  That is to say if you meet the DTI standard, would a lender be likely to turn you down if you still had high util?  What impact could other installment loan balances (student, auto) have?  I know all of these payments factor into DTI, but I'm wondering beyond that...

I guess in summary:  If you have a credit score and DTI that meets the criteria, what other credit factors could make or break you.  I understand it's subjective in a lot of ways and depends on the lender, so i'm looking more in terms of general crieria, or if there's something that would make any lender automatically disqualify you.

[Anonymous]

Credit card utilization is two-fold when applying for a mortgage. 1) The higher utilization you have, the more that will have to be counted toward your DTI calculations. 2)FICO's mortgage scores like it when you don't have high utilization, meaning your mortgage credit scores will be higher when you have lower credit card utilization. 

To get the optimal scoring on your mortgage credit scores, the goal is to have all cards report a $0 balance except one. The one card that you select to carry a balance should report a balance that is between 1%-9% of your credit limit. 

In regards to installment loans for your mortgage credit scores, there is an optimal utilization percentage for that too, but I can't remember what that is. Also, if you have any recent late payments on your credit report, that may be an issue as well. 

I would imagine if your CC utilization is high at the time of application, the lender will recommend you pay the credit cards off or tell you how much to pay off on the credit cards. When applying for a mortgage, there's a lot that's taken into consideration, so there isn't just "one" factor that can get you turned down. 

[EaglesFan2006]

Thanks!

out of curiosity, is there a reliable "tool" or site where I could get or buy a mortgage FICO score without applying?  I'd like to see where I stand in my plan...thanks!

[Anonymous]

If you are seriously looking right now, call myFICO and ask for the Premier 3B subscription. You will get access to all versions of your credit scores every month for a fee. 

If you subscribe to the myFICO Ultimate 3B, you get updates to your FICO 08 scores monthly, but your mortgage scores are updated every 3mo. Again, there's a fee for this. 

Checking your own credit is a soft pull, which lenders cannot see. 

If you get the subscription, come back and let us know what the scores are. FYI, myFICO is the only place where you can get your mortgage scores. 

[Anonymous]

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@Anonymous wrote:

In regards to installment loans for your mortgage credit scores, there is an optimal utilization percentage for that too, but I can't remember what that is. Also, if you have any recent late payments on your credit report, that may be an issue as well. 

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Great response by Rookie.  As touches what R says above, simplest thing is not to concern yourself with installment utilization at all -- i.e. with trying to pay down installment debt.  That is almost always a losing proposition when one is preparing for a mortgage, since there are better things to use it for.  The only time to even consider it would be if you can easily pay off almost all your CC debt and still have plenty of down payment money.

Revolving utilization is a big deal, however, and any mortgage prep plan should strongly consider paying almost all of your CC debt off.

[EaglesFan2006]

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@Anonymous wrote:

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@Anonymous wrote:

In regards to installment loans for your mortgage credit scores, there is an optimal utilization percentage for that too, but I can't remember what that is. Also, if you have any recent late payments on your credit report, that may be an issue as well. 

---

Great response by Rookie.  As touches what R says above, simplest thing is not to concern yourself with installment utilization at all -- i.e. with trying to pay down installment debt.  That is almost always a losing proposition when one is preparing for a mortgage, since there are better things to use it for.  The only time to even consider it would be if you can easily pay off almost all your CC debt and still have plenty of down payment money.

Revolving utilization is a big deal, however, and any mortgage prep plan should strongly consider paying almost all of your CC debt off.

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Thanks,

Yeah my revolving debt is high, at least too high in which I couldn't pay it all off and still have a down payment.  I mean I know I would fit the DTI bill even if I didn't pay off a dime of it, but if having revolving debt is a dealbreaker I will likely wait another year.  Oh well.  Thanks!

[Anonymous]

If you don't mind, you can make a list of all your credit cards with their limits and balances. Then you can get a recommendation on how to move forward. 

[VALoanMaster]

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@EaglesFan2006 wrote:

When it comes to mortgage loans, what impact does your credit utilization have assuming you meat the DTI requirements with most lenders?  That is to say if you meet the DTI standard, would a lender be likely to turn you down if you still had high util?  What impact could other installment loan balances (student, auto) have?  I know all of these payments factor into DTI, but I'm wondering beyond that...

I guess in summary:  If you have a credit score and DTI that meets the criteria, what other credit factors could make or break you.  I understand it's subjective in a lot of ways and depends on the lender, so i'm looking more in terms of general crieria, or if there's something that would make any lender automatically disqualify you.

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Hi Eaglesfan2006,

Your utilization & installment balances have pretty much zero affect on whether or not you qualify for a mortgage outside of debt to income ratios in most cases.

I have had an underwriter try to deny a loan in the past because the client had a prior bankruptcy & showed high utilization on multiple ccs. The underwriter's position was the client was putting themselves right back in the same situation that caused their bankruptcy. 

Things that can make a lender automatically disqualify you: Late payments in the last 12 months. A bankruptcy or foreclosure. Late payments after a bk or foreclosure.

Multiple collections. CAIVRS hit. 

[EaglesFan2006]

Thanks for the info everyone.

Unfortunately I called MyFICO and they don't offer the premiere subscription anymore.  Bummer

UPDATE -

I decided to just buy the Ultimate 3B report...the stress was just weighing too much.  Surprisingly my Mortgage scores (673 EQ, 672 EX, 658 TU) were better than I thought, and higher than my FICO 8 (and Auto FICO, which surprised me).  So I guess I feel mildly better.  Still need to get my wife's information though..I know her credit has some dings that are couple of years old, but she has little debt compared to me and we would need both incomes.

[Anonymous]

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@VALoanMaster wrote:

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Hi Eaglesfan2006,

Your utilization & installment balances have pretty much zero affect on whether or not you qualify for a mortgage outside of debt to income ratios in most cases.

I have had an underwriter try to deny a loan in the past because the client had a prior bankruptcy & showed high utilization on multiple ccs. The underwriter's position was the client was putting themselves right back in the same situation that caused their bankruptcy. 

Things that can make a lender automatically disqualify you: Late payments in the last 12 months. A bankruptcy or foreclosure. Late payments after a bk or foreclosure.

Multiple collections. CAIVRS hit. 

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Hey VLM!  Thanks for that helpful reply.  One thing confused me though.  Your first paragraph said that CC utilization had zero effect.

Then in the next paragraph you gave us an example of a underwriter denying a loan based partially on showing high CC utilization.

Can you clarify a bit more?