Can I exclude an installment debt If I Have Less Than 10 Payments Left? (2024)

FAQs

Can I exclude an installment debt If I Have Less Than 10 Payments Left? ›

More often than not, an installment loan (i.e. car loan or student loan) can be excluded during the approval process so long as you only have 10 payment or less to make. While some lenders have their own restrictions, most conventional and unconventional mortgage products allow you to exclude this debt.

Installment debt may be excluded if the information on the credit report or other Mortgage file documentation verifies that there are 10 or fewer months of payments remaining.

With installment loans, it's pretty simple. The monthly payment is clearly stated on the note or appearing in a credit report. however, lenders may also ignore the installment debt if there are less than 10 months remaining on the note.

Installment loans that are being paid off or paid down to 10 or fewer remaining monthly payments do not need to be included in the borrower's long-term debt.

"Closed-end debts do not have to be included if they will be paid off within 10 months and the cumulative payments of all such debts are less than or equal to 5 percent of the Borrower's gross monthly income. The Borrower may not pay down the balance in order to meet the 10-month requirement."

When considering all the money you'll need to invest in a new car, try to keep your total transportation costs to 10% of your monthly income or less. This way, you can afford to keep up with payments and still cover any unexpected costs.

Finally, apply the 10% rule.

Take your monthly income and divide it by 10. Your total car costs each month should be no higher than that. That includes your car payment, insurance, maintenance, and gas. (Your insurance company should be able to give you an estimate before you buy the car.)

An installment debt is generally repaid in equal monthly payments that include interest and a portion of the principal. This type of loan is an amortized loan that requires a standard amortization schedule to be created by the lender detailing payments throughout the loan's duration.

Excluded Loan Balance means, with respect to any date of determination, the sum, without duplication, of the aggregate for all Dealers of the amount by which (A) the aggregate Outstanding Balance of all Loans made to each such Dealer exceeds (B) the product of the Dealer Concentration Limit and the Aggregate ...

If you're a co-signer on a loan, and you're looking to get approved for a mortgage, you may be able to exclude that debt provided that you meet certain criteria.

What is the 6 month rule for delayed financing? ›

Delayed Financing Exception

Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursem*nt date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.

o Borrowers may not pay down installment debts to less than 10 months to exclude the debt for qualifying. Closed-end debts can be excluded if they will be paid off within 10 months from the date of closing and the cumulative payments of all such debts are less than or equal to 5% of the borrower's gross monthly income.

FHA and VA mortgage guidelines will allow a borrower to pay down their credit card balances to $0 and the underwriter will only count a $10/month minimum payment towards the borrower's debt to income (DTI) ratio. The credit card account do not need to be paid. This is definitely good news for FHA and VA loans.

More often than not, an installment loan (i.e. car loan or student loan) can be excluded during the approval process so long as you only have 10 payment or less to make. While some lenders have their own restrictions, most conventional and unconventional mortgage products allow you to exclude this debt.

FHA Collection Guidelines

If a payment arrangement is not available, 5% of the outstanding balance will be used with the debt-to-income calculation. If the debt has been paid in full, the debt will need to be verified that it was satisfied. The debt can be paid at closing with a payoff.

However, some specific categories of loans are excluded from the rule. Specifically, the TILA- RESPA rule does not apply to HELOCs, reverse mortgages or mortgages secured by a mobile home or by a dwelling that is not attached to real property (i.e., land).

The Rule of 78 formula

The lender allocates a fraction of the interest for each month in reverse order. For example, you would pay 12/78 of the interest in the first month of the loan, 11/78 of the interest in the second month and so on. The result is that you pay more interest than you should.

Lenders generally exclude certain debts when calculating a mortgage's debt-to-income (DTI). These debts may include: Debts that you'll pay off within ten months of the mortgage closing date. Debts not reported on credit reports, such as utility bills and medical bills.

Some servicers will refuse to accept what they consider a “partial” payment. They could return your check and charge you a late fee or claim that your mortgage is in default and start foreclosure proceedings.

The 20/10 rule of thumb is based on consumer debt. In general, this refers to debt used for consumer products. For example, a personal loan or a credit card are considered consumer debt. Your mortgage and student loans are usually not considered in the calculation of the 20/10 rule.