Moment credit card balance factoring into DTI ratio (loan, approved, loan)
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I apologize in advance if this has been asked before, as it seems like a pretty common question, but searching didn't yield me anything.
I'm looking to try to obtain a mortgage for my first home sometime in the next 6 months or so. I have no revolving credit card debt, but I do put all of my incidental charges on a credit card and pay in full each month for extra protection/cash back, etc. Usually this accounts for around $500-600/month. I have around $37,000 total in available credit.
I know that when a potential lender pulls your report, it's just a "snapshot" of what everything looks like at 1 point in time as far as current balances. Will this potentially account into my DTI ratio?? Will a lender look into several months' of statements to see that I pay in full? Should I hold off using my card for a few months leading up to trying to get preapproved?
For reference, I have no debt and my FICO is around 740 or so, so I'm in good shape in that venue. My one concern, however, is that my income a tad on the low side for what I'd like to purchase (and what I feel that I can afford considering what I pay at the moment for rent ), so I want to get approved for as much as I realistically can... ideally I'd like to find a lender willing to loan me around 30-32% of my gross income, but not sure if that will happen.
Last edited by thepinksquid; 03-28-2012 at 11:04 PM..
I apologize in advance if this has been asked before, as it seems like a pretty common question, but searching didn't yield me anything.
I'm looking to try to obtain a mortgage for my first home sometime in the next 6 months or so. I have no revolving credit card debt, but I do put all of my incidental charges on a credit card and pay in full each month for extra protection/cash back, etc. Usually this accounts for around $500-600/month. I have around $37,000 total in available credit.
I know that when a potential lender pulls your report, it's just a "snapshot" of what everything looks like at 1 point in time as far as current balances. Will this potentially account into my DTI ratio?? Will a lender look into several months' of statements to see that I pay in full? Should I hold off using my card for a few months leading up to trying to get preapproved?
For reference, I have no debt and my FICO is around 740 or so, so I'm in good shape in that venue. My one concern, however, is that my income a tad on the low side for what I'd like to purchase (and what I feel that I can afford considering what I pay at the moment for rent ), so I want to get approved for as much as I realistically can... ideally I'd like to find a lender willing to loan me around 30-32% of my gross income, but not sure if that will happen.
No, keep using it as you do. The minimum payment will be used to compute your debt to income ratio, not the full balance.
As Debsi wrote, they'll use the minimum balance, so it will only be a factor if you are very close to the top end of the ratio. When I applied for a mortgage back in January, the online application automatically pulled in the minimum payments as listed on my credit report. I just zeroed them out since I pay them off in full every month, and could prove this to the lender with many months' worth of statements. Sounds like you could do that too if it ever becomes an issue.
As Debsi wrote, they'll use the minimum balance, so it will only be a factor if you are very close to the top end of the ratio. When I applied for a mortgage back in January, the online application automatically pulled in the minimum payments as listed on my credit report. I just zeroed them out since I pay them off in full every month, and could prove this to the lender with many months' worth of statements. Sounds like you could do that too if it ever becomes an issue.
Awesome... great to hear they let you show previous statements as proof. Thanks!
Actually what I have been doing since January (when I applied for the mortgage) is paying the balances in full BEFORE the statement even comes out, so the statements now show a zero balance. I started doing this when it looked like the cards were reporting the statement balance to credit bureaus. I knew I could show that I pay them off in full every month, but I figured I could just as easily pay them off before they show up on my credit report instead of after. It was not an issue with my lender that I showed balances (and then zeroed them out on my mortgage application since I could show that they were paid in full every month), but I don't close until 5/3 so I didn't want there to be ANY issue. (I have very low ratios, but I also will be renting out my current house and they only count 75% of the rental money against that house's mortgage, so the remaining 25% shows up as a debt -- I wanted all my OTHER debt to be as low as possible!)
The disadvantage is that I lose the grace period on credit cards since I am now paying things off before they even show up on the statement, but the advantage is that when the credit cards report they are now reporting a zero balance. (Once I close I will go back to paying things off after they show up on my statements.)
Actually what I have been doing since January (when I applied for the mortgage) is paying the balances in full BEFORE the statement even comes out, so the statements now show a zero balance. I started doing this when it looked like the cards were reporting the statement balance to credit bureaus. I knew I could show that I pay them off in full every month, but I figured I could just as easily pay them off before they show up on my credit report instead of after. It was not an issue with my lender that I showed balances (and then zeroed them out on my mortgage application since I could show that they were paid in full every month), but I don't close until 5/3 so I didn't want there to be ANY issue. (I have very low ratios, but I also will be renting out my current house and they only count 75% of the rental money against that house's mortgage, so the remaining 25% shows up as a debt -- I wanted all my OTHER debt to be as low as possible!)
The disadvantage is that I lose the grace period on credit cards since I am now paying things off before they even show up on the statement, but the advantage is that when the credit cards report they are now reporting a zero balance. (Once I close I will go back to paying things off after they show up on my statements.)
Your balance as a percentage of your limit is factored into the credit score.
Your payment is used to calculate Debt To Income ratio in underwriting affordability of payments.
These are 2 very separate calculations and evaluations.
Your balance as a percentage of your limit is factored into the credit score.
Your payment is used to calculate Debt To Income ratio in underwriting affordability of payments.
These are 2 very separate calculations and evaluations.
My balance utilization at any point in time is very low (like never more than $1,000 on a $37,000 total limit).
My question pertains to the fact that since I pay in full every month, will this have an effect on my DTI ratio (considering the debt is not carried month to month). And, if this still does have an impact, should I just hold off using cards altogether until I secure a mortgage.
It will have a minor impact. Look at it this way- if you make $5k a month and charge $800. The minimum payment on $800 is probably about $50 or about a 1% hit to you DTI. If this is a deal breaker your buying too much house.
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), so I want to get approved for as much as I realistically can... ideally I'd like to find a lender willing to loan me around 30-32% of my gross income, but not sure if that will happen.
