Debt to Income Ratio is Calculated Before Mortgage Qualification

The mortgage lender will also take into account the amount of debt that you already. While the lender may ignore the very short-term debt that you’re likely to pay off in the next 6 to 10 months it will count the revolving credit on your credit card, balance on your existing automobile loan, existing student loans, personal loans etc.

Having existing debt is something that increases the debt to income ratio. The lesser the debt to income ratio the mortgage and fairs and hinders with your application approval process. For example if you have a monthly income of $5000 and your existing debt is $1500 then your current debt to income ratio is about 27%. If this is remarkably higher than the mortgage lender may not want to approve you for a an additional mortgage loan with the fear that you may not be able to meet the additional burden. Before you apply for a mortgage loan it is an extremely good idea to pay off your small loans and credit card debt in order to reduce your debt to income ratio. Because having existing debt will only harm your prospects with the mortgage application.

It may also make sense to cancel some unused credit cards because having too much credit already available to you makes you that much more risk a to the lender. Also having any credit cards beyond a certain limit can negatively impact your credit score of it is widely believed that once you have existing credit, canceling those credit accounts will not have much of a difference on your credit score as long as you have not been maintaining high balances on those credit cards. however, in the eyes of the lender it will still make a difference because the lenders do not like to see the possibility of the borrower getting himself in unmanageable debt in the future which might result in a default mobile mortgage.

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