Payment Shock and Paying Down Debt

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    Hello All,

    I know payment shock has been covered a lot and I understand how it works for the most part. My situation is a little different in that, I currently do not pay rent. So I calculated my payment shock to be the full 31%. For ease of calculations lets call it a payment shock of $3,000. I don’t plan on spending $3,000 on a mortgage… targeting maybe around $2,500 or less but for payment shock purposes I figured its best to try and save the full $3,000. Anyhow, the part that I have a question on is how this all relates to aggressively paying down credit card debt.

    For example:
    Ending balance for all bank accounts in May: $10,000

    Ending balance for all bank accounts in June: $13,000

    So what if in July, my ending balance is $15,000, which is technically short $1,000 BUT what if the reason is because I paid off a $1,500 credit card? Would the excess payment over the minimum credit card payment ($35) go towards payment shock? Or would the clock start over in this case?

    My goal is to pay down as much debt as possible before going into my intake session, as well as paying down as much debt as I can before closing, but I also want to make sure that I am covered from the payment shock perspective.

    Thanks in advance!



    The first thing I will say is you whether you want a mortgage of 31% or not it’s best to try to get qualified for as much as you can so you are definitely in the right mindset. You never know. You might end up needing an extra $50/month and even though you can afford it you would be required to buy down a couple points without getting re-qualified.

    Anyway paying down and 1 time emergencies are exceptions that can be granted to the payment shock rule. You just need to show the documentation to prove that you did reduce debt and that prevented you from saving the full amount.

    As long as you can meet all you other monthly obligations reducing debt is always a good idea. Obviously (and I know you don’t pay rent) if you skip rent to reduce a loan balance that’s an issue.


    Thank you for the response @Nelsont. Would I have to write an LOE for the debt payments or would the credit card statement showing a payment of $1500 be sufficient?

    A follow up question: what about a one-time medical payment? We just recently had a baby and the hospital bill is due this month. Would this count against payment shock? Or would I be better off not paying off the credit card and instead paying off the hospital bill? I suppose I can ask the hospital to see if I can pay in installments to spread out the hit on the account balances to make sure I’m always at +$3,000 each month.


    I think you would need a LOE along with the supporting documentation. You should’t have any issues.

    Congratulations on the baby! And I think that falls in the same category as above.


    Hello nitromiles,

    Here’s the big question: Does your counselor KNOW that you are aggressively paying down your debt? Unless he or she knows and can be watching for it, all they will see is that your bank balance didn’t increase by the full $3000 that month.

    There’s simply too much data in any given file for the counselor to spot something like that automatically. You must inform them so they can make sure it is accounted for when the file goes to the underwriter for approval.

    BTW, you were right on the mark figuring that your Payment Shock will be the full payment amount for which you want to be qualified.

    Remember, in the NACA process every i is dotted and every t is crossed, so you should never assume anything. Remember that your counselor is your partner, advocate and coach in getting you through the process successfully, so make sure he or she is made aware of everything that can affect your file.

    Tim Trumble
    Online Operations, NACA">


    @TTrumble Thank you Sir for the insight. I have not met with a counselor yet (that meeting isn’t until August) so should I try to reach out to her before the meeting? Or should I just make the minimum payments for now until after I have a chance to meet with my counselor?

    My thought process was to try to lower my DTI as much as possible before going into the intake session just so that I can maximize my purchasing power. You make a great point though; it definitely makes sense that a counselor may only see that my account balance decreased with the amount of data they have to go through.

    I guess maybe I’ll hold off on the aggressive payments until I meet with her.

    Thank you again for the response!


    Hello everyone!

    I have a couple of follow-up questions. I recently just got a pay raise. This would increase our housing ratio by about $250-300. So with regards to shock, do I need to save the full 31% based on my new salary, or would the amount I was saving before be sufficient? I definitely understand that you want to qualify for the maximum amount possible but I don’t know if we would need (or even want) to max that out. We have a pretty good idea of what our new house will cost… using the online calculators and such, our projected mortgage would be approximately 24-25% of our gross.

    Second question. I know it’s been said that the total amount of all of your accounts need to grow by the payment shock amount each month without fail. So what if you were in a situation where you saved above your payment shock amount during a certain month, by say, $1000, but the following month you dropped below the payment shock amount by $100. Technically you would still be up $900 over that two month span. Or does it reset every month regardless of how much your savings exceeded your payment shock the previous month?


    If you want to qualify for a higher amount you would need to demonstrate you have saved the difference between your rent and your new piti. You would also need 1 or 2 pay stubs at the new rate of income.

    Payment shock cannot be averaged. It resets every month regardless. It’s there as a trial phantom mortgage. How can the bank be sure you can afford a mortgage that is hundreds of dollars more per month than your rent? You save that difference. Especially since it’s hard to break habits of spending which could get you in trouble with higher bills. And it builds character which the naca qualification is based on – not credit. You can double pay your mortgage and the one month you are short the foreclosure process starts so this is why payment shock is so important.


    Gotcha. I should be able to save the higher amount, I just wanted to pay down my debts while still covering the shock amount. I know that some of those extra payments I make towards credit cards can count towards payment shock. Per Tim’s point above, since I haven’t met with my mortgage counselor yet, she would have no idea that I was aggressively trying to pay down debt when she looks at my file. Moving forward, I guess it would be easier to cover the shock amount first, then use whatever is left over toward debt.

    Thanks for the insight! That’s why I’m glad I found this forum!

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