Playing with fire (aka ARMs in this market). Am I being stupid?

[Autumnslight]

Well, I've had in depth discussions with a couple of mortgage brokers. I know my scores, qualifying income, debt ratios, and the projected interest rate, PMI, taxes, and insurance, so I have a very good idea of what the max price is that I can qualify for.

I'm not getting a preapproval or letting anyone pull my credit yet because I won't qualify right this minute due to revolving account balances. And since I'm hoping to go conventional, if I apply while they still have balances that disqualify me, I won't be allowed to just pay them down in order to qualify. I'd have to actually close the accounts, which I have no intention of doing. So, I'm waiting until they're paid off and updated on my reports before I let anyone pull my credit.

[tooleman694]

Of course you could pay them down to qualify. They could pull you right now and see where you are at and then they do a rapid rescore to get your revolving credit down.

[Autumnslight]

But the key is that I'd also have to close the accounts. Per the Fannie Mae underwriting requirements, if you pay down revolving accounts in order to qualify, you also have to close the accounts. You can't leave them open. Maybe certain lenders will let you slide on that, but I'm not interested in taking the chance. I can't move forward until they're paid down anyway, so I'd rather just wait. A pre-approval with the condition of reducing existing debt is not useful to me at this point.

[tooleman694]

Uh what? where did you get that info. I have never heard of that.

[Autumnslight]

Here: https://www.fanniemae.com/content/guide/sel011713.pdf;jsessionid=0E2093D50ABD46467B5B56BAAD735D76.cp...

The Fannie Mae Single Family Selling Guide, dated 1/17/2013. Part B, Subpart 3, Chapter 6, Section 7 - Payoff or Paydown of Debts for Qualification (page 505 of the PDF).

Basically, in order for the monthly payment to not be counted in your DTI, the account has to be closed. Like I said, maybe some lenders will let you slide, but I'm not interested in taking chances. I've seen numerous people here comment that their lender required them to close certain accounts before approving the loan. My plan is to get the accounts reporting zero balance and payment before a broker or underwriter ever sees them. That way, I'm not "paying off or  paying down debts to qualify". I'd qualify right off the bat.

[tooleman694]

I just read it, it says only needs to be closed if you don't want the minimum payment included in your DTI. Your min payment I would imagine would come down if you paid the debt down.

[Autumnslight]

Well, if it's paid to zero, the minimum payment would be zero, and it would be a non-issue. But it specifically says:

"If a revolving debt is to be paid off but not closed, a monthly payment on the current outstanding balance should be considered as long term debt"

The way I read that is if my current outstanding balance is $5,000 and the monthly payment on that is $100, and I'm going to pay it off but not close it, then the $100 payment should be included as debt in my DTI.

That sort of thing could make a big difference in the total loan amount someone could qualify for. I might be being overly cautious, but I don't see any reason to take the chance.

[tooleman694]

That is not correct, that is why people do rapid rescores.. to fix DTI issues..

[Autumnslight]

It's different for FHA loans I believe. It's also different if you're talking about installment loans versus revolving accounts. And the lender also has the ultimate say in whether to count it or not. But, according to the letter of the guidelines, it should be counted, and I don't see any reason to take the chance. A conditional pre-approval at this point in the game doesn't do me any good, so I prefer to wait until I have everything in order.

[MovingForward_2012]

Thank you for the additional info. That clarifies things a lot. :-)

When you pay $5000 down on a single card to $50, more than likely your min monthly payment is typically $25 per month. That is the lowest min monthly payment that folks typically pay. How do you know that they won't add a $25 min monthly payment calc into the DTI for cards with a zero balance or worse, still require them closed? Did you talk to your loan officer about it? I just don't want you to get too far in the process thinking they won't have to be cancelled if you pay them down to zero before you apply. I am a little skeptical about that. Some times the rules in writing can be confusing and/or the lender has his own requirements that supersede Freddie's requirements. If your Broker told you this is how it would work then I wouldn't be too concerned about it. If not, you should tell him to get his thoughts.

I understand what you are saying about credit score and conventional.

Just try to go about it as if something will change. As the Broker begins to look over the actual data and especially when you file goes to underwriting, your perfect vision on how things will go will most likely turn out differently as right now, everything is an estimate. Once the real data starts flowing in, someone may realize they had a different picture in mind when you were describing it than what is fact...with fact being determined by the actual data and lender requirements.