Understanding Credit and Debt Ratios | Underwriting

Understanding Credit and Debt Ratios | Underwriting 

There are 2 topics underwriters don't like to see changes in during the process of obtaining a new mortgage loan: credit and debt ratios.

Credit is a critical factor in obtaining approval for your mortgage and getting the lowest interest rate. Credit history is reflected in your credit scores. Credit scores are one of the major approval factors and once established with the underwriter, should not change at all. However, many of the everyday things you do can impact your credit score.

Debt ratios are also affected when you take on new credit. Your total monthly debt payment divided by your total monthly income is your debt ratio. When you add new debt, your ratio is higher and that can impact the amount you can borrow and sometimes whether you can be approved at all.

After you have had a pre-approval and are in the process of closing on a house under contract, you should avoid any changes in credit and debt ratios.

For example, don't purchase a new car or even shop for one. Don't buy new furniture, apply for a new credit card, or sign up for a new Lowes or Home Depot card. Any of these things could negatively impact the underwriting process and your ability to close on your home loan.

If you have any questions, don't hesitate to contact your loan officer when considering new debt during the home buying process. Your underwriter will thank you for it!