Or, call me at: If you have an American Express credit card, it could add an extra wrinkle to your next home purchase or refinance transaction. Because American Express traditionally requires you to pay your outstanding balance in full every month, often it reports the full balance as the payment on your credit report, which can make it difficult to meet debt-to-income ratio guidelines.
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Depending on the type of American Express card you have, the payment reported on your credit report could be just a minimum payment or it could be the full balance on the account. If it’s the latter, it could become an issue when you’re qualifying for a home loan. For instance, if you have a $3000 balance and the payment reported on your credit report is also $3000, the mortgage underwriter will have to qualify your debt-to-income ratio with the full $3000 as your payment. Unless you have a large income and super low expenses, this is probably going to be an issue.
If you run into this hitch with your next loan, there are three ways it can be resolved:
- Demonstrate a three-month track record of paying the account in full. The underwriter will ask for complete credit card statements that cover the most recent three months to prove this.
- Demonstrate that you have enough cash in the bank to pay the balance in full. Underwriters will want you to document this with full bank statements covering the most recent two months. The account must be highly liquid, such as a checking, savings, or money market account – retirement accounts will not work. It’s best to use an account that gets relatively little deposit activity to avoid sourcing and seasoning headaches that can come up with bank statements.
- Document that you are allowed to make a minimum payment. You’ll need to provide a statement documenting that American Express will accept a minimum payment instead of paying the balance in full. If this is the case, the underwriter will qualify your debt-to-income ratio based on the minimum payment.
Another option is to pay the account in full two months ahead of applying for a mortgage and not use it again until the loan is complete. This way, the balance will be reported on your credit report as zero and the payment issue won’t come up at all.
If you’re applying for a mortgage and have an American Express card, planning ahead to properly document the account can help smooth out any issues that come up during the loan process. If American Express allows for a minimum payment, this shouldn’t be an issue. However, if they require a full payoff every month, it’s helpful to gather up the applicable documentation above so you have it ready for your lender.
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