For the last few years, even if a person pays off credit cards or lines of credit at closing or before, the payments must be still included in their debt to income ratio. Effective immediately, Fannie Mae will now exclude paid off revolving debts from a borrower’s debt ratio. This can make a huge difference in a borrower qualifying for a purchase or refinance.
Here is the actual Fannie Mae Seller announcement on paid off revolving debts:
When a revolving account is being paid off at or prior to closing, the current policy requires lenders to document that the revolving account has also been closed in order to exclude the payment from the debt-to-income (DTI) ratio. The Fannie Mae Selling Guide has been updated to remove the requirement that the revolving account be closed. Going forward, revolving accounts that are paid down to zero at closing may remain open and no monthly payment needs to be included in the DTI ratio.
Updated Selling Guide Topics – Read the guidelines directly here:
- B3-6-02, Debt-to-Income Ratios 5/26/15 (DTI Ratios, Calculating Total Monthly Obligation,
- B3-6-07, Debts Paid Off At or Prior to Closing 5/26/15 (Payoff or Paydown of Debt for Qualification)
Effective Date: This policy change is effective immediately. Desktop Underwriter® (DU®) currently issues a message stating that revolving debts must be included in the total expense payment if the account is not being closed. Lenders may disregard this message until it is removed in a DU release later in 2015.
To learn more about how to qualify for a Fannie Mae or other type of loan, contact a loan officer today!