• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer

Sonoma County Mortgages

Contact Us About Mortgage Financing

All financing provided by New American Funding

(707) 217-4000 | Prequalify Now

Search Sonoma County Mortgages

  • Home
  • Purchase
    • How Much Down Payment To Buy A Home?
    • How Much Income You Need To Buy A Home
    • How Much Should I Save For Buying A Home?
      • How Rates Affect Payment
    • No PMI Mortgages
    • FHA Loans
    • Sonoma County Disaster Loans
    • Jumbo Loans
  • Refinance
    • Mortgage Rates
    • Does It Make Sense To Refinance?
      • Get Your Refi Paperwork In Order
    • How To Pay Off Your Loan Faster
    • How To Remove PMI
    • How Lenders Price & Quote Loans
  • Loan Programs
  • Payment Calculator
    • Mortgage Affordability Calculator
  • Blog
  • Videos
  • About SCM
  • About Scott Sheldon

Primary Sidebar

Sonoma County Mortgages is a part of New American Funding

New American Funding - NMLS #6606

Get Your Latest Rate Quote Now!

How To Correctly Pay Off Debt When Getting A Mortgage

September 8, 2013 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email

Trying to procure mortgage credit right now? From higher interest rates, to rising house prices to the contraction in buying power, securing financing, for many can prove to be no easy endeavor. As prices, and rates rise in tandem, lenders will still place the weighted emphasis on “real income” as that’s what the mortgage loan is truly made against…

Terms To Know

DTI (debt to income) : represents the total amount of monthly debt payment (+total house payment) divided into monthly income. Whenever this number exceeds 45% of the gross monthly income, things get dicey.

Real Income: also known as “qualifiable income” net income considered for the housing payment after present liabilities are factored in. For example $5,000 monthly income × .45% is $2,250 as a total debt allowance. Less any current liabilities for example $250 per month, means real income is $2000 per month. Real income is equivalent to a proposed housing payment.

Debt: refers specifically to the minimum payment obligations consumer is liable for. Has nothing to do with total amount of debt, but rather what the monthly payments are. Lenders are looking for cash flow, how much or how little of it there is.

*Tip: Debt erodes income (ability to borrow money) at ratio of 2:1, takes $2 of income to offset $1 of debt

 

Paying Off Debt To Qualify Differs From Home Buying To Refinancing

Home Buying- paying off debt to qualify is simply a function of learning how much more in purchase price is achievable if the debt was eliminated. A mortgage company can run scenarios like this  showing you “what if” possibilities  which could be crucial in your endeavor to purchase not only the right home, but ultimately the home that you can afford.

Let’s say for example, there’s $6000 left on a car loan, you have the cash in the bank and the car loan payment is $600 per month. $600 per month on a car loan reduces your ability to purchase to the tune of over $100,000 in loan amount.

Consider the following….

$100,000 at 4.5% on a 30 year fixed rate mortgage translates to $506 per month, $94 per month less for more advantageous debt.

*How To Pay Off The Debt & Still Meet The Lending Credit Standard-paying it off pre-contract, simply inform your mortgage company and they can do a third-party validation to omit the debt. Paying it off during the loan process, monies will have to be sourced and paper trailed, little more technical, but permitted. Same goes for credit cards and other payment obligations.

Refinancing–  When you refinance a mortgage and you pay off debt to qualify, lenders going to require the credit obligations such as credit line or credit card’s for example be paid off in full and closed to prevent the future possibility of further debt accumulation thus impacting the future debt to income ratio as well as the future ability to repay.

Paying off debt to qualify when refinancing will vary from lender to lender as to their specific approaches, but generally the accounts will have to be closed as well. Nothing,  however, prevents you from reapplying for credit after the mortgage has closed.

*How To Pay Off The Debt  & Still Meet The Lending Credit Standard -monies similar to a purchase transaction will have to be sourced, as well as proof the obligation has been closed. Tip: if possible, payoff the credit card in full,  learn the date the creditor reports to the bureaus, then apply for the mortgage after the creditor has reported to the bureaus, doing this will show  the updated balance on the credit obligations which will improve  real income ( by showing less debt), making the process more streamlined.

If you have debt that otherwise could be eliminated and have the means to pay off the debt, strongly consider doing so as higher credit risk  mortgages, tend to be quite pricey overall, compared to lower debt to income ratio credit profiles.

Want  to learn more how  debt removal can improve your ability to buy or refi a home? We can run purchase and/or refinance scenarios help you accomplish your long-term payment and cash flow objectives. Start today by getting a complementary mortgage rate quote.

Related Mortgage Advice from Scott Sheldon

  • Home Buying Sonoma County: Paying Off Debt To Qualify

    If you are in the process of home buying or even refinancing a Sonoma County…

  • should you pay off high interest debt when getting a mortgage
    Should you pay off high interest debt first when getting a mortgage?

    How you plan and budget your finances can have a big affect on whether or…

  • doctor's loan
    Are you a physician? Getting a mortgage just got easier...

    One of more unique ways borrowers in the health care industry can get a mortgage…

  • Should I Put More Money Down Or Pay Off Debt To Buy A Home?

    Lining up your finances for a home purchase this year? Spring is right around the…

Filed Under: Loan Qualifying, Mortgage Shopping, Mortgage Tips & Advice

Get Sonoma County Mortgages News and Updates in Your Inbox

Footer

SCM on Facebook

SonomaCountyMortgages.com

Connect on Facebook

SCM On Instagram

Follow Sonoma County Mortgages on Instagram

Follow on Instagram

SCM on Zillow

Zillow Reviews for Scott Sheldon, New American Funding

See Reviews on Zillow

Location & Contact

Sonoma County Mortgages and New American Funding are an Equal Opportunity Housing Lender

Scott Sheldon, Senior Loan Officer
NMLS ID# 287389
2455 Bennett Valley Road C107
Santa Rosa, CA 95405
1-707-217-4000
View SCM Map | Email Us!

Map of Sonoma County Mortgages New American Financing Office

View Map on Google

Copyright 2010–2023 SonomaCountyMortgages.com · About Us · Sonoma County Loans · Privacy Policy · Terms Of Use · Legal · Site Map

NMLS Consumer Access © New American Funding. All rights Reserved. NMLS ID#6606.
Corporate Office 14511 Myford Road, Suite 100, Tustin, CA 92780. We at New American Funding take great pride in our customer service and make it our number one priority. We encourage you to contact us for complaint resolution or any post-closing questions you may have regarding the servicing of your loan. We strive to have your experience with New American Funding a stellar one. In the rare case that our service did not meet your expectations, please call our customer care hotline at 1-800- 450-2010, ext. 7100 or you may contact us by email customerservice@nafinc.com. Please leave a detailed message and we will follow up with you no later than the end of the next business day. If you are using a screen reader or other auxiliary aid and are having problems using this website, please call 800-450-2010 Ext. 7100 for assistance.

State Licensing (Opens in New Window) | Privacy (Opens in New Window)
Terms of Use (Opens in New Window) | Electronic Consent Agreement (Opens in New Window)
Opens in new window Opens an external site Opens an external site in a new window