A borrower’s debt-to-income ratio is an important part of the financial qualifications your lender will look at when trying to decide to approve or deny your mortgage loan application.
Some future borrowers don’t help themselves out in this regard during holiday time and as we approach November and December, those in the planning stages of their mortgage loan journey should beware of opening new credit or increasing credit card use on existing accounts. Why?
Credit Card Use Spikes At Holiday Time
Traditionally, American consumers tend to increase credit use during the holiday season and it never pays to ignore this factor–take your potential holiday spending into account when planning for a new mortgage loan.
In some cases the amount of the credit card debt isn’t the problematic factor–timely payments is the problem.
Don’t Skip Payments
Some consumers are tempted at holiday time to skip payments in order to meet their holiday shopping needs, but a missed payment within 12 months of your FHA mortgage or refinance loan application is something the lender will take a dim view of when trying to justify approving your mortgage loan.
Financial experts recommend borrowers maintain on-time payments with no late or missed payments for a minimum of 12 months leading up to your home loan application.
Stay Disciplined With Your Credit
The lender is required to check your credit reports for patterns of creditworthiness, and if your payment habits are spotty at holiday time, this will be an issue–simply put, don’t skip payments on ANY financial obligation for a minimum of 12 months before you submit application paperwork.
Those who aren’t sure how to plan or budget for home loans in late 2020 or early 20210 should contact the FHA directly at 1-800 CALL FHA (their help line) to request a referral to a local, HUD approved housing counselor who can help with pre-purchase planning advice and information on best practices for budgeting, credit, and what to expect from the lender’s credit check.
It’s a bad idea to skip payments at any time, but resisting the urge to skip payments at holiday time is especially important.
For best results at application time, do your best to keep your credit card balances as low as possible. You will want to avoid new lines of credit and NOT just until you submit your loan application.
You should assume the lender will check your credit report multiple times before loan closing–applying for more credit after applying but before your closing dayte is a problem for your lender. Don’t take the chance.