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Mortgage Debt To Income/credit Card Situation

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jontx
New Visitor

Mortgage Debt To Income/credit Card Situation

I have a somewhat unique situation and am seeking advice on the best way to proceed.

 
I have a bucket of money available to me that I would like to use to pay off some debt, in an effort to lower my monthly obligations and also help my DTI for purchase of a new home. Here is what I have from a monthly payment standpoint:
 
Credit Card #1 (In my name) - $300/month
Credit Card #2 (In wife's name) - $350/month
Student Loan  (In wife's name) - $100/month
Car Loan (both our names) - $280/month
 
I would like to focus on paying off the credit cards or at least one credit card first due to the higher interest rate. However, I have heard from a few folks that underwriters want you to get installment plan loans paid off first for DTI purposes. In other words, even if I paid off the credit card or cards, the underwriters would still look at the previous monthly obligation amounts, since they think I could run the debt back up immediately.   This puts me in an odd position of wanting to pay of the CCs first, but possibly needing to take care of the installment loans for DTI purposes.  I won't be able to pay off all the debt at once so I'm trying to focus on which debt to tackle first.
 
We live in Texas. Does the need to pay the  student and car loans first make sense from a mortgage underwriter DTI perspective?
 
Thanks!
Jon
Message 1 of 8
7 REPLIES 7
StartingOver10
Moderator Emerita

Re: Mortgage Debt To Income/credit Card Situation

If you can not pay off the installment loan entirely, then it does not change your DTI.

 

However, if you pay down your cc debt, then it changes your DTI immediately.

 

What I think you are referring to is the fact that if you have been carrying debt on your cc and suddenly pay it down, you think the u/w will impute a debt that doesn't currently exist on your cards. I haven't seen this happen.

 

When you make application the credit report will reflect whatever you have in the way of cc balances and those are the figures that will be used. If your file is borderline, the u/w may look at your cc history.

 

What are your FICO scores? Payments toward your cc debt will help your utilization which will help your score. Ideally you want to maximize your score without impacting the funds that you have for down payment and closing  (and reserves where required).

 

What is your cc balance and credit line? What is your utilization? How many credit cards do you have and how many have balances?

Message 2 of 8
jontx
New Visitor

Re: Mortgage Debt To Income/credit Card Situation

Thanks for the response!

 

My FICO is at 700. 

 

I have 3 CCs, 2 of which have a balance, 1 has a $0 balance.  CC utilization of total is about 66%

 

If I pay off one of the cards, which is what I'm thinking about doing, I'll be down to 31% on CC utilization. Thoughts?

 

One more question, which has also come up ...

 

One of the cards with a balance is in my wife's name but I'm listed as an authorized user (I don't need to be). If I remove myself from being an authorized user on the card, and applied for a mortgage in my name only, would the u/w still take into account the card being tied to me? The reason I ask is I have seen information online that shows in Texas (common law state), that her CC balance would apply to me from a mortgage approval standpoint, even if it's not in my name.  

 

 

Message 3 of 8
StartingOver10
Moderator Emerita

Re: Mortgage Debt To Income/credit Card Situation


@jontx wrote:

Thanks for the response!

 

My FICO is at 700. 

 

I have 3 CCs, 2 of which have a balance, 1 has a $0 balance.  CC utilization of total is about 66%

 

If I pay off one of the cards, which is what I'm thinking about doing, I'll be down to 31% on CC utilization. Thoughts?

 

One more question, which has also come up ...

 

One of the cards with a balance is in my wife's name but I'm listed as an authorized user (I don't need to be). If I remove myself from being an authorized user on the card, and applied for a mortgage in my name only, would the u/w still take into account the card being tied to me? The reason I ask is I have seen information online that shows in Texas (common law state), that her CC balance would apply to me from a mortgage approval standpoint, even if it's not in my name.  

 

 


Texas is a Community Property state.  Common law is not the issue with obtaining a mortgage, but community property is a factor.

Yes her debt would be considered in your ratios in a community property state.

 

If you can get your score over 720 (or 740 in some cases) than the MI is substantially less for conventional loans. Getting your utilization down will help you. You might want to pm DallasLoanGuy who is a LO on this board to ask specific questions on how your wife's debt impacts your qualifications for a mortgage. It might be more beneficial to you to pay off one of your cards instead or pay down both of your cards to well under 50% utilization to see your score increase above 720. This does not apply if you are going for an FHA loan because the MI doesn't change with your score.

Message 4 of 8
TurboFX
New Contributor

Re: Mortgage Debt To Income/credit Card Situation

If you can pay down your installment loan(s) to where you have 10 months or less remaining it will not be factored into your DTI. Community property states will factor spousal's debt into DTI even if they are not on the loan.

Message 5 of 8
StartingOver10
Moderator Emerita

Re: Mortgage Debt To Income/credit Card Situation


@TurboFX wrote:

If you can pay down your installment loan(s) to where you have 10 months or less remaining it will not be factored into your DTI. Community property states will factor spousal's debt into DTI even if they are not on the loan.


TruboFX is right, but this is lender dependent. Some lenders, like Chase, will count the debt even if you only have one month remaining. So ask that question first before you make application as it will make a difference as to which lender you want to use.

 

Plus paying off an installment loan will NOT increase your score. Paying down revolving debt will increase your score. In fact, paying off an installment debt could drop your score. However, paying off installment debt will help your overall DTI, but in your original post, that was not the area of concern, was it?

 

I would concentrate on increasing the score to get the lowest mortgage insurance rate because the lower the MI rate, the lower your payment.

Message 6 of 8
TurboFX
New Contributor

Re: Mortgage Debt To Income/credit Card Situation

I guess Chase really tightened up their WAMU business. If your issue is DTI then get your installments down and check with your LO. If they will not exclude the your installments then go to a different lender. All lenders underwrite to the same general guidelines, and some impose stricter overlays. If your DTI is fine and you are looking to improve your score then follow startingover10's advice.
Message 7 of 8
StartingOver10
Moderator Emerita

Re: Mortgage Debt To Income/credit Card Situation


@TurboFX wrote:
I guess Chase really tightened up their WAMU business. If your issue is DTI then get your installments down and check with your LO. If they will not exclude the your installments then go to a different lender. All lenders underwrite to the same general guidelines, and some impose stricter overlays. If your DTI is fine and you are looking to improve your score then follow startingover10's advice.

^^^Yes, they did.  It was a night and day difference.

Message 8 of 8
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