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Credit Score: 765, Debt-to-Income: 35% --> worth lowering by 3%?

With a Credit Score of 765 (came from Experian) and a Debt-to-Income ratio of 35% (came from TransUnion), I'm wondering if it's worth paying off the credit cards ($6,000) before trying to get a home loan? Using the online worksheet (at TransUnion), it looks like do so would only reduce the Debt-to-Income ratio by 3%. Not sure if that's worth it or if it's better to hang onto the money that would've gone towards the cards and put it in savings (thereby increasing assets). Advice? Thanks. One other question- any bets on whether a credit profile like that can get a person a loan w/ only like 12-15% down (instead of 20%)? Thanks. by mrsebastian from Madison, Wisconsin. Jun 17th 2011 Reply


Chris Gummerson (cgummerson11)
#396 ranked lender in California - 648 contributions

FHA loans require 3.5% down. You can do Conventional loans upto 95% but you also will have mortgage insurance. If you want the best rate and lowest cost without mortgage insurance, then you would want to put down 20%. For income and debt to income ratio, take your gross earnings and multiply by 45%. This would be the max debt to income ratio a lender will allow. So if you gross 10k a month, then 4500 is your max debt you can carry, including mortgage payment, taxes, insurance, mortgage insurance, car payments, credit cards etc. So if you are at 35% now, throwing in a mortgage would increase that %. Feel free to contact me and I can explain more.

Jun 17th 2011
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Jeff Hutchison (jhutchison)
#14 ranked lender in Iowa - 40 contributions

Hello Mr Sebastian, thanks for your question. Your debt to income ratio is fine and you wouldn't need to pay down anything. I am assuming that we would not be adding an existing mortgage payment to your debt ratios, in case a current residence did not sell prior to taking out a new mortgage. Your credit score is excellent also. Lowering your debt ratios and increasing your scores would not have any impact on pricing.I would hang onto the money for the down payment or moving expenses. You can easily obtain financing with 10% down, and most likely only 5% down. FHA is always an option also with 3.5% down.Please let me know if you have any additonal questions.

Jun 17th 2011
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Michael Opheim (mopheim)
#9 ranked lender in Wisconsin - 3 contributions

Your debt to income ratio is fine (current conventional underwriting guidelines call for a total debt to income ratio of no more than 45%). You will need cash after you buy your home for all the trips to the home improvement stores for lawnmowers, hoses, edgers, etc.. There are many loan programs available that only require a 3.5% down payment. And if you are a veteran, NO down payment is required. Your credit profile is excellent, so get pre-qualified with a local mortgage professional and go find your house!

Jun 17th 2011
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