Insider Tip: Improve Your Debt Ratio

Most lenders have underwriting guidelines in place that allow their underwriters to ignore installment liabilities with less than 10 payments remaining. Installment liabilities are credit agreements where the balance is paid off in a set number of payments, such as a home loan or a car loan. Credit cards are revolving liabilities since they don't have a fixed number of payments. By paying an installment liability down to the point that there are 10 or less payments remaining you can have it ignored in your debt ratio (DTI) and you might be able to borrow more money or qualify in situations where you otherwise would not. You can either pay down the liability prior to applying for the loan (best for purchases) or pay down the debt with your loan proceeds as part of a debt consolidation refinance. While this is a common practice across most mortgage lenders they also almost always exclude auto leases from this policy. In general an auto lease will be replaced with a similar lease or a new loan at the end of the lease term, so the lender uses your current payment as an indication of what your payments will be with a new lease or loan.