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If in the middle of the process I’ve been told my debt ratio is too high to qualify, can I then pay credit cards to better qualify?

Paying off your credit cards prior to applying for any home mortgage loan is always a good idea, however it’s very common that a borrower will learn in the middle of the loan processing that they may need to lower their debt-to-income ratio in order to better qualify for the mortgage loan. More often than not, a broker will recommend the best way to do this is to pay off past credit card debt.

But — while paying off your credit card is always a good idea, you may also have to close the credit card account in order to qualify for a mortgage loan. Conventional mortgage products allow you to maintain a credit card account after payoff, however other unconventional mortgage products do not. See below:

  • Fannie Mae (Conventional): Revolving account can be left open after payoff, but could be required to be closed if the underwriter deems it necessary to approve the loan.
  • Freddie Mac (Conventional): Revolving account can be left open after payoff, but could be required to be closed if the underwriter deems it necessary to approve the loan.
  • FHA: Must be closed
  • USDA: Must be closed
  • VA: Must be closed

 

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Getting your financial house in order shows a lender that you’re responsible and financially capable of handling further debt. To learn more tips and advice on how to fix your credit before buying a home, read this blog post: How to Repair Poor Credit Before Securing a Home Loan.

 

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