Calculating Debt to Income Ratio:
Why It Matters & How To Find It
You already know that your credit score matters.
And I guess I always knew it too, but the importance of maintaining good credit really hit home for Matt and I was when we bought our first house.
We were 21, expecting our first child, and I was only 4 months out of college. We weren’t initially planning to buy a house, but making an 1.5 hour drive each way to work every day, being pregnant, and renting were not a good combination for us, so we decided to look at fixer-uppers.
Eventually we settled on a $40,000 HUD home, put in a bid, and won!
But that was where to the good news ended.
We had planned to buy the house with both of our names on the loan, but when it came time to hand over our documents to underwriting, we discovered a giant problem: Matt’s credit.
Before you think the credit problem was his fault, let’s get something out of the way: it wasn’t.
See, his parents had added him to their credit card account when he was only 6 months old. Then for 18 years, they had faithfully paid off their balances every single month, effectively building his credit into a perfect score.
That 18 years of perfect credit history was what made up most of his credit score. (Mine was good, but I only had 4 years of credit history)
As it turns out, just as we were getting set to buy the house, his parents credit card numbers were stolen, so they had to get new card numbers – and there was a 30-day period where Matt effectively had NO CREDIT.
In 30 days it was resolved, but in 30 days we would lose our winning bid on the house.
Tough situation, right?
We thought about looking for a different house, letting the one we bid on go, but then our mortgage office presented us with a different idea: to buy the house in my name only. Then, when the stolen credit card situation was figured out and we got Matt’s credit back, we could either refinance in both of our names, or just leave it as is.
And that’s where my Debt to Income Ratio came in – hard. [Read More…]