Mortgage Application Factors: Debt

 

Buying a Home is a Huge Investment. Make Sure You're Ready

Purchasing a house is the single largest purchase and investment you will make in your lifetime. When you are ready to apply for your mortgage, make sure that you are aware of all the factors that can affect your ability to qualify for a mortgage approval. In our last blog we covered the impact your credit cards have on your ability to qualify. Today we will cover another big qualification factor, your debt.

 

How Does Debt Factor Into My Mortgage Application?

 

Your debts do not only affect your credit scores, but they are also considered within your debt to income ratio (DTI), the amount of debt you have as compared to your overall income. Your DTI is as much of a valuable number as your credit score. Your debt can affect the amount you could potentially qualify for, or not allow you to qualify at all depending on your DTI

 

How Can I Manage My Debt For a Mortgage Application?

 

To ensure your debt is in the best position for your application follow these simple rules:

 

Avoid making major purchases.

 

When taking out bigger loans, for example an auto loan, the new debt acquired will reflect within your credit report thus lowering your credit score. On top of that, your DTI ratio will now increase. The higher your DTI is, the higher of a risk your lender is taking. This could result with denial of a mortgage, or not being able to qualify for as much of a mortgage.

 

Keep balances as minimal as possible.

 

Are you looking to minimize debts to improve your credit AND DTI? Pay off revolving lines of credit first (credit cards), before installment lines of credit (loans). Revolving accounts weigh much heavier in your credit score calculation, and by lowering these balances, it can allow for a better score increase. Additionally, paying credit cards off as close to zero as possible can also help with your debt to income ratio, as credit cards with a zero balance will usually reflect with a $0 monthly payment.

 

Lower Debts = Better Chance to Qualify For a Mortgage

 

Ensuring that not only your credit score is in good standing but also your debt, will allow for better qualification offers. Keeping low debt and a low DTI overall will allow you to essentially qualify for more of a home. Check out our other checklists Qualifying for Your Home Purchase and Purchasing the Right Home, for more information on the home buying process. Join us next time as we will cover the next important factor, employment history.

 

 

MSI Credit Solutions provides superior credit restoration and comprehensive consulting services that are reliable and affordable. For any questions or to schedule a free credit consultation, contact us at (866) 217-9841.

 *The information in this article has been provided strictly for educational purposes.