Earning more takes time. The moves on this page take days or weeks, because they change the debts the lender counts. Debt-to-income ratio (DTI) is your house payment plus monthly debts divided by gross monthly income, and FHA approves up to 56.9% total and 46.9% for the house payment alone with an automated approval. Conventional goes to 50%.
A worked example on $4,600 a month
Taylor earns $4,600 a month gross. The debts on the credit report:
- Car loan: $389 a month, 8 payments left
- Card A: $1,150 balance, $35 minimum
- Card B: $4,800 balance, $144 minimum
- Student loans: $26,000 balance, deferred, $0 payment
On FHA, the deferred student loans count at 0.5% of the balance, $130 a month. The car counts too, because FHA only drops a loan with 10 or fewer payments left when those payments total 5% of gross income or less, and $389 is more than 5% of $4,600 ($230). Total FHA debts are $698.
FHA's total limit is 56.9% of $4,600, or $2,617.40, and the housing limit is 46.9%, or $2,157.40. Each move below takes the prices on FHA 100% financing at a 5.75% rate, with property tax at 0.95% of the price a year and $283 a month for insurance.
| Move | Cash used | FHA debts | Most house payment | Highest FHA price |
|---|---|---|---|---|
| Start | $0 | $698 | $1,919.40 | $234,000 |
| Pay off card A | $1,150 | $663 | $1,954.40 | $240,000 |
| Also pay off card B | $5,950 | $519 | $2,098.40 | $260,000 |
| Also document a $40 income-driven student loan payment | $5,950 | $429 | $2,157.40 | $269,000 |
Each row takes the lower of the two limits. In the last row, $2,617.40 minus $429 is $2,188.40, which is above the $2,157.40 housing limit, so the housing limit becomes the cap. Three moves and $5,950 add $35,000 to Taylor's price.
The moves that work in weeks
Pay revolving debt to $0. A card that's half paid still carries a minimum. Paid to zero, the payment drops out, and Fannie Mae doesn't require the account to be closed. Start with the cards that free the most payment per dollar spent.
Document the real student loan payment. FHA uses the actual payment when it's above zero and 0.5% of the balance when it's $0. Fannie Mae uses 1% of the balance on a deferred loan, but counts $0 when the servicer documents a $0 payment on an income-driven plan. Enrolling in an income-driven plan and getting the servicer's letter often takes a few weeks, and it can cut the counted payment by more than half.
Use the 10-payment rule on Conventional. Fannie Mae lets the lender leave out an installment debt with 10 or fewer payments left, unless the payment would strain your budget. Taylor's car drops off a Conventional application entirely. With the student loans at 1% ($260) and both cards, Taylor's Conventional debts start at $439 against a 50% limit of $2,300, leaving $1,861 for the house. After the two payoffs and the $40 documented payment, debts fall to $40 and the room for the house rises to $2,260. FHA's version needs those payments to total 5% of income or less, and HUD doesn't let you pay a loan down just to reach the 10 months.
Show that someone else pays a co-signed debt. When a relative's car loan or card shows on your report because you co-signed, Fannie Mae and FHA both let the lender leave it out once the other person's bank records show 12 months of on-time payments.
Add a co-borrower. A parent or grandparent can join the loan on FHA as a non-occupant co-borrower, adding their income. Social Security counts grossed up 15% on FHA because it isn't taxed.
What to avoid while you fix it
Opening a new card or car loan adds a payment and an inquiry. Co-signing for someone else puts their payment on your report. Moving money around without a paper trail makes the lender ask where every large deposit came from. Keep the accounts open, keep the payments on time, and make the payoffs from money you can document.
If savings are thin, the seller can pay up to 6% of the price toward your FHA closing costs, and FHA 100% financing covers the 3.5% down payment, so your own cash can go to the cards.
Zero out each debt in the DTI calculator to see which move buys the most house. Before you pay anything off, call AAA Capital Funding at 888-601-8344 and we'll tell you which payoff, which student loan letter and which co-borrower adds the most to your approval.