Can You Buy House With Credit Card Debt With High DTI
A frequently asked question at Gustan Cho Associates is can you buy house with credit card debt but pay off the credit card once the lender says your debt-to-income ratio exceeds the max? The answer is yes, you can have credit card debt when buying a house. However, if the mortgage underwriter says your debt-to-income ratio exceeds the max allowed and you need to pay it off, you no longer have to close out the credit card accounts.
If you can show the qualified funds to be able to pay the outstanding credit card account balance, you can pay the credit card account balance at the title company. The title company can pay the outstanding balance at the closing table. You can buy house with credit card debt without closing out the card after paying the balance during the mortgage process.
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Closing Out Credit Card Account After Paying Balance Due To High DTI
Can you buy house with credit card debt without closing out the card after paying off the card balance? In the past, when the mortgage underwriter conditioned you to pay off the credit card balance due to the high debt-to-income ratio, you had to pay it off and close out the credit card accounts. This is no longer the case. In the following paragraphs, we will be answering and covering the topic of can you buy house with credit card debt with a high debt-to-income ratio.
Can You Buy House With Credit Card Debt Without Closing Card After Paying Debt During Mortgage Process?
Will the lender make you pay off the credit card account balance after being paid off or can you just keep the zero balance credit card account? We have been getting a lot of conflicting stories on this topic. Both homebuyers and loan officers are confused about the answer to can you buy house with credit card debt and do you need to close out the credit card account after paying it off.
Can You Buy House With Credit Card Debt and Pay Balance During The Mortgage Process?
Debt-to-income ratios are one of the most important factors a mortgage underwriter will carefully look at when qualifying for a mortgage loan applicant. The debt-to-income ratio will always come up throughout the mortgage application and approval process. When you first apply for a mortgage application, your mortgage broker should carefully look at your income, your assets, your liabilities, and your proposed housing payments. You no longer have to close out your credit card balance if you need to pay your outstanding credit card debt during the mortgage process due to a high debt-to-income ratio.
What Your Housing Payment Consists Of?
Your housing payment will not only consist of principal, interest, taxes, and insurance but also double-check to see if the proposed home purchase is in a flood zone. Also, if there is a homeowners association dues. If you are on the edge and barely qualify for the necessary debt to income ratios requirement, a slight increase in your expenses or decrease in your income can potentially kill your mortgage loan application and you may not be able to close on your home.
How Are Debt-To-Income Ratios Calculated?
FHA loans, VA loans, USDA loans, Conventional loans, and Jumbo mortgage loans all have different maximum debt-to-income requirements. Mortgage loan borrowers who have borderline tight debt-to-income ratios may be required to buy down points to qualify for a lower mortgage rate or close out credit card accounts so the minimum credit card payments are not calculated in qualifying the debt-to-income ratios.
Closing Out Credit Card Accounts After Being Paid
FHA and Fannie Mae no longer require that all credit card account balances that are paid off prior to the mortgage loan application process and approval process needs to be closed out. HUD and Fannie Mae now allow you to just pay down your credit card balances and do not have to close them out. Before, Fannie Mae and Freddie Mac wanted you to pay credit card balances and then close them out. However, you no longer have to pay the credit card debts and close them out. This is because they did not want you to pay credit card balances and then turn around and load up your credit cards again.
How To Prepare Credit Profile Before Buying a House?
You should seek the consultation of a loan officer prior to shopping for a home and applying for a mortgage. It takes time for you to maximize your credit profile and boost your credit scores.
If you are planning on applying for a mortgage loan in the very near future and have higher debt-to-income ratios, the recommendation is to make sure to pay off all of your credit cards beforehand to avoid delay in the mortgage process. Make sure the credit bureaus have zero balances reported on your credit report if you do not want to delay the mortgage process by doing a rapid rescore.
Click here to prepare credit profile for buying house
Fannie Mae No Longer Requires Credit Card Accounts To Get Closed After Paying Debt
You no longer have to close out your credit cards after paying your credit card debts. After you close on your mortgage loan, there is no restriction on why you cannot open your credit cards. You can go ahead and open up as many credit cards as your like as well as the credit card accounts that you have closed.
Frequently Asked Questions (FAQs)
- Can I still buy a house if I have credit card debt and a high DTI?
Yes, buying a house with credit card debt and a high DTI is possible, however, it could pose more difficulties and necessitate thorough planning. - What impact does credit card debt have on my eligibility for a mortgage?
Credit card debt affect your eligibility for a mortgage by elevating your debt-to-income ratio and reducing your credit score. Lenders may view high levels of credit card debt unfavorably. - What is considered a high DTI ratio when buying a house?
A high debt-to-income ratio is typically considered above 43% to 50%. Nonetheless, this may differ based on the lender and the loan category. - Can I still qualify for a mortgage with a high DTI ratio?
Securing a mortgage with a high debt-to-income (DTI) ratio remains achievable. Still, you may need to explore alternative loan options or make a larger down payment to offset the higher risk. - What steps can I take to enhance my likelihood of securing approval for a mortgage despite having credit card debt and a high debt-to-income ratio (DTI)?
Enhancing your odds involves reducing your credit card debt, increasing your income, reducing other debts, and improving your credit score. Additionally, consider working with a co-signer or exploring government-backed loan programs with more flexible DTI requirements. - Should I pay off my credit card debt before applying for a mortgage?
Clearing credit card debt can enhance your debt-to-income ratio (DTI) and boost your probability of mortgage approval. However, it’s essential to consider the overall impact on your financial situation and whether paying off debt would deplete your savings or emergency fund. - Are there mortgage programs specifically designed for borrowers with high DTI ratios?
Certain government-backed loan initiatives, like FHA loans, may have more flexible DTI requirements than conventional loans. Additionally, some lenders offer specialized loan products for borrowers with high DTI ratios. - What role does my credit score play in buying a house with credit card debt and a high DTI?
Your credit score is a crucial factor in determining your eligibility for a mortgage and the interest rate you’ll qualify for. Maintaining a good credit score can help offset the impact of credit card debt and a high DTI ratio.
The answer to can you buy house with credit card debt due to high DTI is yes. You no longer have to close out your credit card account after paying the card balance. If your mortgage loan originator takes your mortgage loan application to Freddie Mac, Freddie Mac does not have this rule and you can just pay off your credit cards and not pay off the balance.
You can contact us at Gustan Cho Associates by calling (800) 900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
This article on can you buy house with credit card debt with a high debt-to-income ratio was updated on February 13, 2024.
