Paying off Credit Cards at Closing

[Anonymous]

We currently have our home on the market and as soon as we go under contract we would like to make an offer on a home that we found that we love. Unfortunately we have racked up about $18,000 in credit card debt and it is affecting our DTI and what we can be pre-approved for. We plan to pay this debt when we close on the house that we own currently. Even after paying that off we should still have 10% down on a new home. My question is: Do we have to wait to get preapproved after we have paid this debt off and it reflects on our credit report? Or can we move forward and get preapproved with the contingency that the debt must be paid in full before closing on a new home?

[homeloanexpert]

I just closed one last this month like yours. I issued a pre-approval the borrowers with paying off the required debts at closing and they made their offer. It's a little extra work for the Escrow/Title Company due to all the payout they have to send out, but no biggie! It''s easy, you just provide the lender and Escrow/Title company with the most recent statements to paid off, then at closing they pay them. Easy!

[Anonymous]

If this arrangement is made then those revolving debts would not count towards the DTI ratio, correct?

[homeloanexpert]

Yes you are correct!

[Anonymous]

It seems like DTI should not be the only concern here.  With 18k in CC debt, your FICO scores are likely substantially worse than they would be if you had all cards reporting $0 except one, with the remaining card reporting a small positive balance.  Substantially lower scores will affect the interest rates you are offered I would think.

This would form the case for paying down your CC debt in advance of preapproval, unless I am missing something.