"Do I Have to Close a Credit Card I Pay Off at Closing to Get the Payment Out of My Debt Ratio?"

We pull your credit report for the pre-approval, and one card on it shows a balance and a minimum payment. That minimum payment is factored into your debt ratio right alongside your future mortgage payment, and the ratio is running a little tighter than the loan program would like. You have enough in savings to pay the card off. Somewhere along the way you have also been told to close the account once it hits zero, so the lender cannot count it. Paying it off is the right instinct, and closing it afterward is the part I would want to talk you out of before you do anything.

You do not have to close a credit card to get its payment out of your debt-to-income ratio on a conventional loan. Fannie Mae's Selling Guide says a revolving balance paid off at or before closing does not need to be counted in the ratio, and the account does not need to be closed as a condition of leaving the payment out. The lender needs proof the balance is paid.

I'm Jeff Moran, a mortgage broker in Bluffton, South Carolina, originating since 1996, NMLS #483943, through C2 Financial Corporation, and I'm licensed in fifteen states. The rule below comes from Fannie Mae's Selling Guide, so it reads the same in all fifteen of them.

If you are still deciding which debt is worth paying off at all, which debt to pay off before buying a home walks through that decision. This post picks up where that one stops: you have decided to pay something off, and you want to know what your file does with it.

Does paying off a credit card at closing lower my debt-to-income ratio?

Yes, on a conventional loan. Your debt-to-income ratio compares your monthly debt payments, including the new mortgage payment, with your monthly income before taxes. A credit card shows up in that ratio as its minimum payment, the one printed on your credit report. Once the balance is paid to zero, there is nothing left for a minimum payment to be measured against.

Fannie Mae's Selling Guide covers this in B3-6-07, Debts Paid Off At or Prior to Closing (revised 04/05/2023). The guide says that if "a revolving account balance is to be paid off at or prior to closing," the monthly payment on that balance does not need to be included in your long-term debt. It spells that out as "not included in the debt-to-income (DTI) ratio". Revolving is the guide's word for a credit card or a line of credit, where the balance moves up and down and the payment moves with it. The payoff can happen as late as the closing itself.

Do I have to close the credit card after paying it off?

No. The same section says "Such accounts do not need to be closed as a condition of excluding the payment from the DTI ratio". The lender can ask for proof that the balance is paid, and the guideline stops there.

Keeping the account open is also better for you, and the reason has nothing to do with the mortgage. An open card with a zero balance keeps its credit limit on your report, which keeps your overall utilization low, and it keeps the age of that account in your history. Closing the card removes the limit, so the balances on your other cards take up a bigger share of what is left. Eight ways to strengthen your credit before a mortgage covers what to leave alone once your file is moving, and closing a paid-off card is on that list. Its advice is to keep a card like this open, and to put a small recurring charge on it if the issuer might close it for going unused.

The installment loan with ten or fewer payments left

The second rule in B3-6-07 is the one that can help without costing you a dollar. The guide says "installment loans that are being paid off or paid down to 10 or fewer remaining monthly payments" do not need to be included in your long-term debt. An installment loan is a car loan, a personal loan, or anything else with a fixed payment and a set end date.

That sentence covers two different situations. If the loan already has ten or fewer payments left, the payment can be left out of your ratio with nothing paid. If it has more than ten left, you can pay it down until ten or fewer remain, and then the payment can be left out. On a car loan with eight payments to go, the lender can set the entire payment aside in your ratio while the loan stays exactly where it is.

The number of payments left on each installment loan is worth knowing before we talk, because a credit report shows the balance and the payment, and leaves the count to you. A loan statement or a quick call to the lender will tell you, and a documented pre-approval is where that list gets built.

Paying it off before closing versus at the closing table

Both timings satisfy the rule, and the paperwork is different.

If you pay the card before closing, the lender needs to see the zero balance. Once the payment has posted, please provide the statement that shows the zero balance, all pages, even if the last page is intentionally left blank, or the payoff confirmation the card company sends. The lender also has to see where the money came from, so a payoff made from an account you have already provided statements for is the simplest kind.

If you pay the card at closing, the payoff goes on your closing statement as its own line. The settlement agent sends the money to the card company out of the funds you bring, and your cash to close goes up by that amount. The lender has to see that the money for the payoff is there on top of your down payment, your closing costs, and any reserves the program asks for.

You will want to tell me about the card before you pay it, so we can decide together whether the payoff is worth doing and when it should happen. A payoff made quietly in the last week before closing still has to be documented, and the documenting is what takes the time.

The underwriter's look at how you use credit

The same section opens with a caution. The guide says "Payoff or paydown of debt solely to qualify must be carefully evaluated and considered in the overall loan analysis". It adds that your history of credit use should be a factor in whether a debt is included or excluded.

In plain words, the underwriter is allowed to look at the pattern. A card that has been paid to zero and run back up several times over the last two years reads differently from a card that carried one balance from a kitchen remodel and is now being retired. If the pattern says the balance will be back within a few months, the underwriter can decide the payment stays in the ratio even though the balance is zero today.

So if you are planning a payoff, tell me about it at the start, and we can look at that pattern together while every option is still open.

Mistakes that put the payment back in your ratio

• Closing the card the day it hits zero. The rule does not ask for it, and the lost credit limit raises the utilization on every other card you have.
• Paying an installment loan part of the way down. Extra money on a car loan changes the payoff date and leaves the monthly payment where it was. Unless the paydown brings the remaining count to ten or fewer, the ratio does not move.
• Spending the down payment to do it. The money that pays off the card is no longer available for the down payment, closing costs, or reserves. The strategy post above walks through that trade.
• Using the card again after the payoff. A new balance after the payoff is a new debt. A pre-approval refresh takes a fresh look at your credit, and the zero balance has to still be there on closing day.

An example, with invented numbers

Numbers below are made up to show the mechanism. None of them is a quote or a rate.

Say your income before taxes is $8,000 a month, and the new mortgage payment, with taxes and insurance, would be $2,450. You also have a car loan at $480 a month with eight payments left, a student loan at $210 a month, and a credit card with a $5,200 balance and a $160 minimum payment.

Line	Monthly
New housing payment	$2,450
Car loan, 8 payments left	$480
Student loan	$210
Credit card minimum	$160
Total monthly debt	$3,300
Debt ratio on $8,000 income	41.3%

Paying the card off at closing takes $160 out of the ratio. Total monthly debt drops to $3,140, and the ratio drops to 39.3%. You spend $5,200 of your savings, and the card stays open.

The car loan is the bigger move, and it costs nothing. With eight payments left, the lender can leave the $480 out under B3-6-07 with the loan untouched. Total monthly debt drops to $2,820, and the ratio drops to 35.3%. Doing both brings monthly debt to $2,660 and the ratio to 33.3%.

Spending $5,200 on the card is worth it only if that money is not needed as down payment or reserves. You can run your own version of this table in the Debt Ratio tool.

The FHA version of the ten-payment rule

The rules above are Fannie Mae's, for a conventional loan. If your loan is FHA, the short-installment rule is written differently. HUD Handbook 4000.1 covers it in II.A.4.b, Credit Requirements (TOTAL) (revised 04/10/2025). It says "closed-end debts do not have to be included if they will be paid off within 10 months from the date of closing". That holds only where "the cumulative payments of all such debts are less than or equal to 5 percent of" your gross monthly income. The handbook then adds that you "may not pay down the balance in order to meet the 10-month requirement".

So on an FHA file the window is ten months rather than ten payments. All of those short loans together have to stay under five percent of your monthly income, and paying a loan down to reach the window is off the table. The same section also requires the lender to document where the payoff money came from, and that no new debts were taken on.

For the credit card itself, this post covers the conventional rule. The FHA section on revolving accounts describes how the payment is counted: the payment on the credit report, or where the report shows none, the payment on the current statement "or 5 percent of the outstanding balance". If your loan is FHA and you plan to pay a card off at closing, we should talk about how your file will treat it before any money moves.

Your next step

Before you pay anything off, it helps to see what each move does to the ratio. You can run your numbers in the Debt Ratio tool with your own income, debts, and the payment you are comfortable with, and it will show you what leaves the ratio and what stays. Then we can look for an installment loan with ten or fewer payments left and decide whether the card payoff is the best use of that cash. If you would rather talk it through first, I'm happy to do that on a call, and nothing has to be paid off before we talk.

Nothing here is a loan approval, a denial, or a commitment to lend. Your whole file, the loan program, and full underwriting decide how the guideline language above applies to you. No letter from anyone is a loan commitment.

Common questions

Do I have to close a credit card after paying it off to qualify for a mortgage?

No, on a conventional loan. Fannie Mae's Selling Guide B3-6-07 says a revolving account paid off at or before closing does not need to be counted in your debt-to-income ratio. It adds that such accounts do not need to be closed as a condition of excluding the payment. Keeping the card open with a zero balance also keeps its credit limit on your report, which helps your utilization.

Can I pay off a credit card at closing and have it removed from my DTI?

Yes. The payoff can happen at the closing itself, listed on your closing statement and paid by the settlement agent out of the funds you bring, or before closing with a statement showing the zero balance. The money has to be there on top of your down payment, closing costs, and any required reserves.

Does paying down a credit card help my debt-to-income ratio if I do not pay it off completely?

Often it helps some. A credit card's minimum payment is tied to the balance, so a smaller balance usually means a smaller minimum on the next statement. Paying the balance to zero is the only version B3-6-07 describes as leaving the payment out entirely.

Do installment loans with less than 10 payments left count in DTI?

Under Fannie Mae's rule, no. B3-6-07 says installment loans being paid off or paid down to 10 or fewer remaining monthly payments do not need to be included in long-term debt. On an FHA loan the rule is a 10-month window with a cap of 5 percent of gross monthly income across all such debts, and paying a loan down to reach the window is not allowed.

Can the lender still count a debt I paid off at closing?

Yes, in one situation. Fannie Mae's B3-6-07 says payoff or paydown of debt solely to qualify must be carefully evaluated, with your history of credit use as a factor. If the file shows a card paid to zero and run back up repeatedly, the underwriter can keep the payment in the ratio even though the balance is zero.

Should I pay off the credit card before applying or wait until closing?

Either timing satisfies the rule, so the choice comes down to which one leaves the cleanest file. Paying before you apply means the zero balance shows on the first credit report with nothing to document later. Paying at closing keeps your cash in your account through underwriting and puts the payoff on the closing statement.