• 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!

Why your mortgage chances may be slim with this credit card

January 19, 2017 by Scott Sheldon

Share on Facebook Share on Twitter Share on Pinterest Share on LinkedIn Share on Email
your mortgage chances may be slim with this credit card

Credit cards play an integral role in your ability to qualify for home financing. If you carry a charge card in your wallet, this particular type of credit card might be the reason why your mortgage chances are a bit rocky. This is what you need to know about charge cards:

Most credit cards have a provision in their credit agreement that allows you to carry a balance and paying interest on that debt over time based on a daily periodic rate. The interest on such cards is typically in excess of 11%. Charge cards operate differently. Charge cards require that you pay off your bill in full every month, requiring you to be more responsible. This is a good thing because they require that you pay off the obligation as part of the card services agreement.

When you are applying for a mortgage, this is when things get interesting if you have a charge card.

Mortgages are made against your income. Debt erodes income for a ratio of 2-to-1. For every one dollar of debt you have translates to two dollars of income that is required to offset the debt. Most people use a credit card for general spending and then pay it off in full each month, others use a credit card for big expenses they can pay down over time or emergencies and have larger month to month balances. If you have a traditional credit card like a Visa or Discover card, for example, and the balance is $1,000 payment, your monthly payment associated with that might be $70 per month. Lenders do not look at what your balance is, they care about what the minimum payment is that you are obligated to pay each month. Yes, it is the payment due at the end of the month, not the total amount owed or how much you choose to pay. This is critical because if you choose to pay more than what is owed, congratulations, you are financially responsible, but the lender is not going to give you any accolades for paying more than what is due.

Let us say that you have an American Express credit card with a service agreement that requires you to pay it off in full every month, akin to a charge card. If your balance on your American Express credit card is $1,000, it will report to the credit bureaus (and subsequently your lender) as though your minimum monthly payment is $1,000. The reason it’s a problem is that the balance and the payment report equal to each other. In this case, the balance is equal to your minimum monthly payment. Having a required payment of $1,000 will blow your debt-to-income ratio sky-high because the lender has to use the full balance of your American Express credit card.

This is where training becomes critical when it comes time to apply for a mortgage. $70 per month on a traditional credit card is a substantially easier figure to account for when the lender is looking at how much payments you currently have in relationship to a new proposed housing payment. The reality of it is that in order to avoid the debt burden on your borrowing power, the American Express credit card would need to be paid off in full by close of escrow. You will have to show the lender a statement showing a zero balance in order to remove the debt from your ratio. Be aware that not every mortgage company will allow you to pay off debt to qualify. Do make sure to check with whomever you’re flying with.

The best thing to do to position yourself in the best place for qualifying for a mortgage, whether buying a home or refinancing one you already own, is to make sure that if you carry a charge card the lender you choose will give you the option to pay that debt off before you close your loan. As a measure of good mortgage planning, if you are going to pay off debts to qualify and improve your ability to borrow on a mortgage, the best way to do that and get the biggest bang for your buck is to pay off the obligations that carry the highest minimum monthly payment with the lowest possible balance. This way you are getting the maximum borrowing power and maximum potential in exchange for a little capital.

If you are looking to get a mortgage, make sure the lender you are working with is a Fannie Mae and Freddie Mac seller and hopefully also a Ginny Mae lender. Correspondent lenders and brokers have limited options in terms of what they can do because their programs have to be underwritten for the masses. Fannie Mae Freddie Mac sellers have the ability to responsibly allow loans that otherwise could not happen to work successfully.

Looking to get a mortgage? Start by getting a complementary mortgage rate quote today.

 

 

Related Mortgage Advice from Scott Sheldon

  • Will Credit Cards Help Me Land A Mortgage?

    Well? Yes and No, read on.... Like it or not, your relationship with money can…

  • 5 Frequent Credit Mistakes Mortgage Shoppers Should Pay Attention To

    While credit standard have somewhat loosened up in home lending, make no mistake, getting a…

  • Paying Off Your Credit Cards May Hurt Your Mortgage Approval

    You heard it correctly, your credit card don't have balances, yet your mortgage application can…

  • Why Ability To Qualify Supersedes Rate

    Consumers shopping for a mortgage typically concentrate on attaining lowest possible interest rate. Rates have…

Filed Under: Credit Score Info, First Time Home Buyers, Interest Rates, Invesment Properties/Second Homes, Loan Qualifying, Mortgage Tips & Advice Tagged With: charge card, credit card debt, credit cards, debt obligations, debt-to-income, dti, qualifying for a mortgage

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