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debt to income ratio when buying mortgage. credit card usage?

I am planning to buy a house in a couple of months I know they look at credit card monthly payments. Mine usually average around $1500 a month. I am wondering if I should start paying cash so that the credit card doesn't show up on they calculate the loan for a mortgage that I can afford for now. I have been using credit cards to get points/rewards but I realize that I should probably stop and resume until after the house is purchased. My credit utilization is good at 3% but I can afford to pay cash for now. Or does it not matter at this point because maybe they look 2 years back for credit card monthly usage?

Update:

my only other debt is student loans each month around $3100 for 10 years planning to do 20% down on a house

Update 2:

or does it mean that is ok to use credit card but to pay it off before the new statement comes out?

8 Answers

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  • 1 month ago

    WOAH! Slow down before you lose everything.  If you do not know about the requirements of a mortgage, you could lose your home, and any down payment.  You have $1500 now for cards, $3100 for student loans.  Add to that your mortgage $$100-1500, insurance another couple hundred, AOAO/HOA? fees?, taxes $2000 to $4000 a year, up keep another 5%, utilities, 8% or so, food, car, more insurance.  Do you make so much money that you can budget and know where your pennies will go?  Educate your self on a HELOC while you are at it, and do your self a great favor, use a ZERO INTEREST credit card.  Good luck

  • 2 months ago

    When a lender reviews your credit reports they will look at the entire thing--that means that the bureau they use for reporting your credit usage will have a payment HISTORY of a year or more--so they aren't simply going to be basing your loan on your current month. They will base it on usage over TIME.  If you can afford to pay cash, you should--and stop using your credit cards for everything NOW--but it may or may not have some impact on your loan NOW--it will still be looked at for the past couple of years. Paying off the balance on your cards every month is always a good thing to do.  

    Debt-to-income ratio is considered to be the total of your credit balances against your salary or income. Not MONTHLY. It's the entire amount you owe balanced against your income, past and projected. What you do in the month you apply for your mortgage won't affect that. 

  • ?
    Lv 6
    2 months ago

    Lenders prefer to see a debt-to-income ratio smaller than 36%, with no more than 28% of that debt going towards servicing your mortgage. 12 For example, assume your gross income is $4,000 per month. The maximum amount for monthly mortgage-related payments at 28% would be $1,120 ($4,000 x 0.28 = $1,120).

  • 2 months ago

    They look at the amount of credit cards limit you have and funds you have available.  Which means if you have a low income it's not good to have a high limit.

    You can go ahead and us the credit card.  Just as you always have. 

    You aren't supposed to use it differently than you have.  Like if you normally spend $1000 a month, don't spend suddenly spend $4000.

    -- even then if the $4K doesn't make your debt to income wonky they won't car. 

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  • Anonymous
    2 months ago

    You may not have to pay cash. You can prepay on your card or pay in full the day before the statement goes out.

    But with 20% down, Im guessing it won't matter either way.

  • Anonymous
    2 months ago

    If you're paying off the credit card every month, that helps your credit score.  Paying cash has no effect on your credit score.  They're looking at your history (several years of it) and looking to make sure that you haven't overextended yourself financially, and that you have a history of making payments on time.

  • 2 months ago

    Using a CC and paying it off is building your credit history.  It proves that you are a good financial manager capable of paying your debts.

    If you can afford to pay cash now then you need to continue using your credit card and PAY IT OFF every month.

    When you get into the habit of paying off your CC every month you'll realize that it's basically getting an interest-free loan from your bank every month without filling out any paperwork.

    I have not paid 1 penny in interest on a CC for over 30 years. 

    I've been 100% debt-free since 2006.  I don't even have a clue as to what my credit rating is...and don't really care either.

  • Anonymous
    2 months ago

    I spend $1500-$2000/month on my card too and pay it off in full each month.   It never affected my ability to get a mortgage.

    The minimum payment on the card is not anywhere near $1500, right?   That's how much you CHOOSE to pay. 

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