All Forum Posts by: Nicholas B.

 Yeah, Roy, I've done that too...Many times...With no perceivable impact. Well, other than the fact that my score jumps up briefly if one marks paid before the other reports the balance...

I agree. No way, no how is reducing your utilization ratio going to lower your score in and of itself. It's one of the few things that credit bureaus are actually transparent about. There's got to be something else going on. Every time I've floated a large balance then paid it off in a lump sum, it's spike my score up between 20 and 60 points depending on the utilization I was at.

Sometimes paying off an installment loan does have a negative impact, though.

So you're saying that for a HELOC, your experience is that the payment will be calculated as the maximum payment as if the line was maxed out? How does that work when rates are variable and payments can fluctuate? What if Prime jumps throughout the application process?

I understand that payments can vary on any variable rate loans. I think that's loosely addressed in the compliance manuals and it leaves it to the discretion of the lender as long as DTI fit on the initial application. I'm just wondering what your experience was with this?

The original topic was specific to credit card debt, but a HELOC is a good subject to bring into the discussion, Charlie.

If that's the case, doesn't it really come down to a LTV issue? The lender's not looking at what your potential payment per month may be (as in a DTI calculation), but the overall loan to value picture.

I can say that it is possible to leave a 2nd lienholder in place while refinancing the primary mortgage because I've done it. They based the loan to value on the new mortgage only. At the time, they would not let me finance in the 2nd lien because it would have put me over their max LTV, but they left it intact. To be clear, this was an installment HEL and not a line of credit, so there may be a distinction there and it may depend on the lender.

Are you saying that you do not have experience with any such problems with Credit Card availability, but you do in home equity products?

@Charlie Fitzgerald, do you have any experiences like that since Dodd Frank?

I've been told by vets in this industry that at one time it was common to demand closure of open accounts. I've only been doing this since 2008 and understand that a lot has changed since then. I've personally worked with several lenders on mortgage refinances while having well over $100,000 of available credit with no mention of it. 

I can't find any specific text in any compliance manuals addressing this. Here is CFPB's compliance guide. It covers DTI guidelines in detail , but makes no mention of available revolving credit.

 Interesting, Russell. I've never came across that on thousands of bureau reports that I've seen. I personally have a couple of "flexible spending cards", but they still have limits on paper (and on my credit report). What a mess that would be otherwise, though! 

 Hi Charlie, I respect that you are a Private Money Lender and rightfully have a subjective opinion. I should have clarified that I was speaking specifically of conventional lending. 

Do you have any citation of evidence of this? Or experience with conventional lenders using this method since the big credit reform after the meltdown?

 Bill, I'd like to further discuss this, but not derail this thread entirely. I started another thread in Private Lending & Conventional Mortgage Advice. I hope that you'll take the time to discuss it with me!

Here's the link: https://www.biggerpockets.com/forums/49/topics/242102-mortgage-underwriting-guidelines-and-dti---at-bill-gulley

In another thread, @Bill Gulley and I had a brief discussion on underwriting guidelines. Rather than take that thread off topic, I created this one to hopefully further the discussion. The main contention was whether a lender will consider excessive availability of revolving credit (large open credit card limits) as a negative in calculating your ability to pay or DTI.

___

___

@Bill Gulley, I hope you'll take some time to discuss this as it is of great interest to me and you seem knowledgeable in this area. To clarify, I underwrite loans and sell insurance. I don't underwrite for an insurance company.

I researched the Fannie Mae guidelines a bit since I have no experience with this type of entity. I did find a list of guidelines at: https://www.fanniemae.com/content/guide/selling/b3... titled: B3-6-02: Debt-to-Income Ratios (09/29/2015)

___

There is a specific section addressing this topic:

___

The total monthly obligation is the sum of the following:

• the monthly housing expense of the borrower's principal residence (or the qualifying payment amount if the subject mortgage loan is secured by the borrower's principal residence (see B3-6-03, Monthly Housing Expense));
• the qualifying payment amount if the subject mortgage loan is secured by a second home or investment property (see B3-6-04, Qualifying Payment Requirements);
• monthly payments on installment debts and other mortgage debts that extend beyond ten months;
• monthly payments on installment debts and other mortgage debts that extend ten months or less if the payments significantly affect the borrower

 Credit cards aren't evil. I carry $40,000 of credit card debt at less than 3% interest and a credit score around 780. How is that evil?