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Old 07-30-2012, 06:21 PM
 
Location: West Chester, PA
49 posts, read 75,618 times
Reputation: 21

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First time home-buyer here

I am doing a lot of research right now before we move forward in the buying process.

I am looking at the many "How Much Mortgage Can I Afford" calculators.

I have a few questions on what determines your monthly income and debt obligations.

1. Ira/401k contributions. Do these factor into your income at all? Do they use an adjustable gross income for this? None of these calculators mention this. Right now I am just building it into the monthly debt, even though that is fundamentally incorrect.

2. Credit Card Debt. What do they define as debt? We are both young 24 and 23, but have great credit history. Both of us got on one of our respective parent's credit cards a few years ago to piggyback off their credit. Those cards are perfect and have a sizable limit I am sure. Personally I never even received the card, I told my mom to keep it as I only wanted to boost my credit score. We both also have Discover cards that we got in college. Currently we put most of our monthly spending on the cards to get rewards points etc... For instance my average spending on the card is 400-500 a month. I currently have a $5300 credit line on that card. Basically my purchases are just gas, groceries, entertainment. My girlfriend is in the same situation with her card.

The question here is what do they define as "Debt". All of our cards have been paid off in full each month since we have had them.

Is this type of activity on the card a good thing (the ability to manage the debt and pay it off in full each month) or a bad thing as it shows that we have "debt", when it is really just standard monthly living expenses?

I'd appreciate if someone could shed some light in these areas.
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Old 07-31-2012, 05:41 AM
 
Location: MID ATLANTIC
7,558 posts, read 17,462,235 times
Reputation: 8021
see below in red

Quote:
Originally Posted by jzamorski113 View Post
First time home-buyer here

I am doing a lot of research right now before we move forward in the buying process.

I am looking at the many "How Much Mortgage Can I Afford" calculators.

I have a few questions on what determines your monthly income and debt obligations.

1. Ira/401k contributions. Do these factor into your income at all? Do they use an adjustable gross income for this? None of these calculators mention this. Right now I am just building it into the monthly debt, even though that is fundamentally incorrect. No, do not count. These are voluntary and can be discontinued at any time.

2. Credit Card Debt. What do they define as debt? We are both young 24 and 23, but have great credit history. Both of us got on one of our respective parent's credit cards a few years ago to piggyback off their credit. Those cards are perfect and have a sizable limit I am sure. Personally I never even received the card, I told my mom to keep it as I only wanted to boost my credit score. We both also have Discover cards that we got in college. Currently we put most of our monthly spending on the cards to get rewards points etc... For instance my average spending on the card is 400-500 a month. I currently have a $5300 credit line on that card. Basically my purchases are just gas, groceries, entertainment. My girlfriend is in the same situation with her card. You can have both parent request you be removed as authorized users from these accounts at any time, making them non-factors in your ratios. Be sure to get letters from the creditors saying this has been done when you do this. Whatever credit card debt you have at the time of credit pull is what will becaptured, and it will be checked against the soft pull, just before closing. I advise all customers to suspend racking up points for the short period between loan application and closing.

The question here is what do they define as "Debt". All of our cards have been paid off in full each month since we have had them. Debt is whatever gets captured in the credit pull at the time your loan officer pulls your credit. This includes revolving and installment debt. Depending on they type of loan you are seeking, it may count student loans, even those that are deferred for one year or more. It does not count 401 k loan repayments, insurance, cell phones, utility payments, or gym memberships. It does count timeshare payments.

Is this type of activity on the card a good thing (the ability to manage the debt and pay it off in full each month) or a bad thing as it shows that we have "debt", when it is really just standard monthly living expenses? It really depends on your credit score and what balance on your card is capturesd. Paying in full each month is not carrying credit. If your scores are low, leave a $100 balance on the card when you pay it and that should boost the score. But only do that if you need it. $100 will only give you a $20 payment. (If the payment on the statement is $0, the lender will use $20 for a $100 balance).

I'd appreciate if someone could shed some light in these areas.
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Old 07-31-2012, 07:14 AM
 
Location: West Chester, PA
49 posts, read 75,618 times
Reputation: 21
Thank you for the response.

Is it possible to have too high of a credit line? I know my mom's card is not being used my either of us and just carries a 0 balance now. But I know my girlfriend's parents use their card, but I am sure they have a high limit.

Will this affect anything but our credit scores in the loan application process? I know we both have Excellent credit scores. If not it might be smart to at least take her off her parent's card as an authorized user.
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Old 08-27-2012, 01:38 AM
 
33 posts, read 166,591 times
Reputation: 36
Don't mess with the cards you have at all. It sounds like you're fine. If you're just authorized users on the parent's cards, no problem. Whatever you do, do NOT close out ANY credit cards! They are helping your credit. It used to be the thought that a high credit limit was the potential for too much debt but the thinking has changed a bit. If you can keep your balances at or below 30% of the limit (definitely under 50%) that is fantastic.

It may sound like common sense but you'd be surprised how many people don't know this. Don't even open a small dept store credit card to get the 15% discount, then pay it right off and close it. That will hurt you. There are so many people that do that and don't realize what it can do. it seems so innocent since they pay it right off and close it - all for that little discount at purchase.

Good for you for being so concerned about your credit at your age! Shows a lot of responsibility.
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