It Depends on whether you trying to get a Conventional, FHA, or VA home loan

Finally some good news. As of June 30th 2015, loan guidelines are finally loosening on allowing borrower to payoff mortgage balances to qualify for a mortgage.

Conventional Mortgage past rules:
As you might know, a credit report takes a snapshot of a borrower’s credit card balance once a month. Whatever the credit card balance and minimum payment was reported at that snapshot in time, was the balance and payment that we had to count against the borrower’s debt to income ratio (DTI) on the mortgage application.

It didn’t matter if the borrower paid off their credit cards every month. We still had to count a payment. Additionally, if a borrower had large credit card balance and only made the minimum payment every month and could not qualify for a mortgage due to a high debt ratio, the borrower could not simply pay off their credit cards. The mortgage guidelines required that the borrower actually pay off and then close their account. For borrowers with several credit card balances, it was a daunting task to properly document. And for borrowers who had long established history with a card, they had to say goodbye to the card.

Conventional Mortgage rules going forward:
We no longer have to do this on conventional loans. As long as we have proof that the credit card balance is $0, we don’t have to count a payment against a borrower. This is really going to help borrowers reduce their debt to income ratios and qualify for larger mortgages.


FHA Loan and VA home loan rule past rules:
FHA and VA home loan rules were identical to Conventional before June 30th 2015. Lender would require the credit card balance to be paid down to $0 and the credit card would need to be closed in order for the minimum payment to count against the borrower’s debt to income ratio (DTI) on the mortgage application.

FHA Loan and VA home loan rules going forward:
FHA and VA mortgage guidelines will allow a borrower to pay down their credit card balances to $0 and the underwriter will only count a $10/month minimum payment towards the borrower’s debt to income (DTI) ratio. The credit card account do not need to be paid. This is definitely good news for FHA and VA loans.

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