How this is calculated
Underwriting compares two ratios against your gross monthly income. The front-end ratio is the housing payment alone — principal, interest, property taxes, insurance, mortgage insurance and any HOA dues. The back-end ratio adds every minimum payment reported on your credit: cards, car loans, student loans, personal loans, and court-ordered payments such as child support. The back-end ratio is the one that usually decides a file.
Two things follow from that, and they are the whole point of this page. First, your balances do not appear anywhere in the ratio — only the minimum payments do. Second, the efficiency of a payoff is therefore cash required divided by minimum payment removed, which has nothing to do with the interest rate. This page turns that into one number per move: the dollars it takes to remove one point of DTI, ranked cheapest first.
The down-payment row is calculated the same way, so it can be compared honestly. Adding cash to the down payment shrinks the loan, which shrinks the principal-and-interest payment, which lowers the housing part of the ratio. At a 6.5% thirty-year rate, $1,000 of extra down payment removes about $6.32 a month. A dollar against an instalment loan frequently removes ten or twelve cents of payment for every dollar of balance — an order of magnitude more ratio per dollar.
Worked example — the figures the page loads with.
Income $7,900 a month. A $380,000 purchase with $38,000 down leaves a $342,000 loan; at 6.5% over thirty years that is $2,161.67 of principal and interest, plus $480 of taxes and insurance, plus $142.50 of mortgage insurance at 0.5% a year — a housing payment of $2,784.17, or 35.2% front-end.
The three debts add $500 + $180 + $210 = $890 of minimum payments, so the back-end ratio is $3,674.17 ÷ $7,900 = 46.5% — above the 45% a conventional file usually needs.
Clearing the $4,100 car loan removes $500 a month and takes the ratio to 40.2%. That is 6.33 points for $4,100, or $648 a point. Clearing the $9,000 card removes $180 and buys 2.28 points — $3,950 a point. Putting the whole $9,000 into the down payment buys 0.77 points, at $11,726 a point. Same money, eighteen times the effect.
The best move also lifts the price you can carry at the 45% ceiling from $362,312 to $436,525 — about $74,200 more house for $4,100 of cash. And it leaves $4,900 in the bank against the $5,568 that two months of reserves would take, which is why the page flags it.
What this does not account for
- Your lender's actual overlay. The ceilings here are common programme caps. Individual lenders set stricter limits, and automated underwriting can approve above them with strong reserves, credit or residual income — or decline below them without.
- Student loan payment rules. Programmes differ on income-driven and deferred loans; some use the documented payment, some impute 0.5% or 1% of the balance. If a student loan is your biggest minimum, confirm which rule your programme applies.
- Instalment loans with ten or fewer payments left. Conventional underwriting will often exclude these already, so paying one off may buy nothing at all.
- Credit score effects. Paying a card to zero usually helps utilisation; closing an account can move the score the other way, and a large payment takes a cycle to report.
- Where the money comes from. Funds used at closing must usually be sourced and seasoned. Cash that appears the week before underwriting invites questions.
- Rate and mortgage-insurance pricing. Both move with your score and loan-to-value, so a better file can change the payment as well as the ratio.
- The 80% crossing. If extra down payment takes you to 20% equity, cancelling mortgage insurance can be worth more than the ratio arithmetic suggests. The page flags this when it is within reach of your cash.
Common questions
Why does the highest-interest debt not win here?
Because the goal is different. Interest rate decides what costs you most over time; debt-to-income decides whether the file is approved. A 3% car loan with a $500 payment hurts the ratio far more than a 26% card with a $180 minimum, even though the card is much more expensive to carry. Once you are approved and moved in, go back to paying the expensive debt first — the payoff route comparison ranks that side of it.
Does paying a card down halfway help?
A little. Card minimums are usually a percentage of the balance, so halving the balance roughly halves the minimum. On a car or student loan the payment is fixed by the note and does not move at all until the balance is gone, so a partial payment buys nothing for the ratio.
Should the money go to the down payment instead?
For the ratio, almost never — Plate II shows the gap in your own numbers. It changes when the extra down payment crosses 80% loan-to-value and cancels mortgage insurance, when the programme has a minimum down payment you have not met, or when the file fails on reserves rather than on ratio.
What if I do not have enough cash for the best move?
The table shows every move ranked, with the cash each needs. Moves you cannot currently afford are marked, and the recommendation is taken from the ones you can. It is often worth waiting one month to clear the efficient debt rather than spending the money now on an inefficient one.
How long before the payoff shows up?
Creditors typically report monthly, so allow a full cycle. Keep the payoff letter or a zero-balance statement — a lender can usually use that document directly rather than waiting for the bureau to update.
Will clearing a debt hurt my credit score?
Paying a revolving balance to zero normally helps. Closing the account afterwards can shorten your average account age and narrow your credit mix, which can cost a few points at exactly the wrong moment. Pay it off; leave it open; open nothing new until you close.