Can paying off a debt help qualify you for a mortgage? When you qualify for a mortgage loan it may not be for the amount you want. Outstanding debts can affect how much you are able to borrow. In some instances you may be able to pay off the debt in order to qualify for a larger loan.
If you reduce the number of installment payments to 10 or fewer, the loan may not be included in your debt-to-income ratios. What if the debt has a large monthly payment? Then an underwriter may consider it a risk in your debt-to-income ratio.
For example, a borrower who has a $900 monthly payment on a car loan can reduce the debt down to 10 remaining payments. But the underwriter can require the debt be paid off completely so the remaining balance won’t count against the borrower. Underwriters carefully evaluate the balance between debts and mortgage loan size to determine a borrower’s eligibility. In this case the underwriter thought that the $900 monthly car payment in addition to a mortgage payment could pose a financial risk to the borrower.
It’s important to stay updated on current mortgage guidelines to know how they affect you. In the past, a borrower was required to close a revolving credit card account, even if the debt was paid off. That is not the case now.