@Anonymous wrote:The $0 balance for the DTI is because we have other debts that eat up our 43%. I can easily pay off my credit cards every month.
Please detail the other debts. That's kind of a big deal. Especially if it impacts DTI 
@tufa4311 wrote:
@Anonymous wrote:The $0 balance for the DTI is because we have other debts that eat up our 43%. I can easily pay off my credit cards every month.
@Anonymous wrote:
Also, I will have to have zero balances on my cards (showing $0 min payment) when we go to the bank for the house loan for our DTI.
This I'm not familiar with, your broker says you must have a $0 balance on all revolving credit tradelines when the application goes through?
Well, that's all fine but while have 0% UTIL will help your DTI it will not help your credit score - indeed, under most circumstances it will hurt it. How will having a $10 balance reporting on one of your credit cards affect your DTI in any substantial way?
If there's a balance on the card, even $2, it gets counted as the minimum payment which is reported. Basically flatline credit cards get ignored under the current DTI calculation at any rate for a mortgage process.
That said, there's no way in hell I wouldn't leave $10 on a single CC unless I was so gold plated as to make it irrelevant where I could afford the 10-20ish point hit on a FICO pull. I'd find something else to pay off but that's me.
@tufa4311 wrote:Expand on this if you would. I'll be doing the mortgage thing at some point so it is good knowledge to have. Let's say a balance is left on one card thus it is not ignored on the DTI calculation. What is potential ramification of that? A high interest rate on one's mortgage? If not, then what, how can this hurt financially? Also, are we taking into account the high likelihood that his credit score will go down due to 0% UTIL? Could this put him in a lower bracket so as to get a higher interest rate on his mortgage? Does one offset the costs of the other?
Revelate wrote: If there's a balance on the card, even $2, it gets counted as the minimum payment which is reported. Basically flatline credit cards get ignored under the current DTI calculation at any rate for a mortgage process.
Mortgage interest rate is determined on a couple of things but DTI ain't one of them:
- FICO score
- LTV/CLTV (read as: size of downpayment vs. purchase price)
- Points if you buy them or lender credits towards closing costs
Outside of that though there's nothing which impacts the rate sheet beyond the base rate that a lender is offering on a given product. Since I wasn't in the gold plated strata, and what tier I would land in actually mattered as a result, I went for FICO optimization and left a small balance on one credit card. Frankly I'd argue everyone should do this from an optimization pre-mortgage.
DTI comes into play though whether you can qualify for the mortgage size; essentially what the OP is running into is the sum of all his debts (monthly payments) and the expected mortgage + insurance + taxes divided by his gross monthly income is going over the 43% backend ratio that many lenders have, and as such he can't qualify for the loan without dumping some of his debts.
Credit cards, if there's a balance on them, the minimum payment drops straight into the monthly payment debt, and therefore can affect DTI. Any revolving tradeline which reports $0, does not.
That all said, if we're talking a $20 difference on whether you can meet the maximum DTI line, non-zero chance the mortgage is too expense for current income. You need to optimize both score for rate purposes, and DTI if needed for mortgage qualifilcation at all, and the 0% utilization is a negative from a scoring perspective, and that can materially impact your rate. In my case I was at a 722, if I'd had all 0's and dropped down into the 700-719 tier, that would've increased my rate by around .250%