Conventional loans · Fannie Mae B3-6-07Paying off debt to qualify for a mortgage: what Fannie Mae allows

Fannie Mae lets a buyer improve the debt-to-income ratio by paying debt off at or before closing, but the lender must evaluate a payoff made solely to qualify, looking at the borrower's history of credit use. In general, an installment loan paid off or paid down to ten or fewer remaining monthly payments does not need to be counted. If a credit card or other revolving balance is paid off at or before closing, its payment is left out of the DTI ratio – and the account does not have to be closed. For open 30-day charge accounts, the lender verifies funds to cover the balance on top of closing costs and reserves, or takes proof that it was paid off. Delinquent credit – taxes, judgments, charge-offs of non-mortgage accounts, tax liens, mechanic's liens and other liens that could affect the lender's position or the borrower's equity – must be paid off at or before closing. Federal taxes on an IRS installment agreement must be paid in full if a Notice of Federal Tax Lien may be recorded in the county. On manually underwritten loans, non-medical collections and non-mortgage charge-offs can stay open if each is under $250 or all together total $1,000 or less; DU applies its own credit report analysis.