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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127801  
Subject: Re: Debt-to-income ratio if self-employed Date: 2/11/2013 11:54 AM
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Hi HHP,

Someone told me that some lenders look at average credit card balances rather than minimum required payments when determining debt-to-income ratio. Is that true?
No

Do I need to go cash only for a few months?
No

Or do I need to pay down my balance every couple days to keep my revolving debt low?
No

Will the balances in my business credit cards also be counted? Technically, they shouldn't be, since those are business expenses paid out of gross business income.
No, your required minimum payments will count, not your balances.

Regarding your "business credit cards" if you personally guaranteed them (99.999% likely,) then they count.

And then I also have questions about how income is calculated. Do they use my Schedule C? I have a $2000 per year depreciation write-off from the original purchase of the business. Will that $2000 be considered part of my annual income for purposes of qualifying?
Yes, if its tight a good underwriter will add back in your depreciation.

If I call my bank about refinancing, do I need to ask for someone who specializes in self-employed borrowers or is this routine stuff?
Routine, unless its tight. Just call them, authorize a current credit pull, and have them run your data through the FannieMae/FreddieMac pre-underwriting engines to see what results they get. The algorithms are far more complex than you want to be concerned with yourself (if you can avoid it,) and the odds are strong you'll approve without doing too many backflips.

Should I be requesting something more creative than a standard refi? I'd like to pay as little as possible at closing and increase my monthly cash flow.
A 5 yr ARM is preferred for aggressive savers.

I'm also able to pay down the mortgage somewhat if that will allow me a better deal.
In order to do so you would be depleting your reserves....
Is current cashflows really more important than your accumulated cashflows?
(They may be... but I almost never find that to be the case.)

Helpful?
Dave Donhoff
Leverage Planner
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