Lessons From a First-Time Home Buyer: How an Apple Card Can Affect Your Mortgage Application
Buying my first home was quite an experience. For the most part, it was a positive one — yet there were moments where I was completely dumbstruck and, to quote Will Ferell, felt like I was taking crazy pills. One such moment happened as we were looking to secure pre-approval for our mortgage. As I’ll share in a future installment of this series, gaining approval while being self-employed includes lots of frustrating nuances, but let’s focus on a piece of mortgage lending trivia I picked up in the process.
It was the middle of the afternoon when our mortgage broker called to give us an update. The gist of the call was that things were looking pretty good (after we’d smoothed out a couple of other bumps) and we were nearing an approval. But then, he said this: “You may need to pay off your Apple Card.”
This decree struck me as odd since I had plenty of other cards that I put far more spending on than my Apple Card — but the explanation soon arrived.
A word on DTI
Before I get to the reason why my Apple Card was causing mischief, let’s talk about debt-to-income ratio (DTI). As the name implies, this metric compares how much you make to how much you owe. Because lenders want you to be able to actually make payments on your loan, this is a key indicator of whether or not someone is qualified.
To calculate this number, lenders will total up your various monthly payments and divide it by your monthly income. Keep that in mind as we continue our journey.
Where the Apple Card factors into my DTI
One of the features of the Apple Card is that customers can finance select Apple products with zero percent interest. So, when I purchased a new MacBook Pro earlier this year, I said, “Why not?” and elected to pay it off over 12 months. Thus, it wasn’t the card balance itself that was causing issues but because of the monthly installment payments due.
As it turns out, one of the metrics that mortgage lenders use when looking at your debt-to-income ratio is the minimum payment due on your credit cards. Most of the time, these may be $35 or so. However, because the Apple Card includes those installment payments in the minimum due, it was apparently throwing off their DTI calculation. Funny enough, once this explanation was presented to me, I literally told my mortgage broker, “You are giving me so much content right now.”
By the way, this problem isn’t unique to the Apple Card. If you’ve ever financed a large purchase at a department store or elsewhere, there’s a chance you were actually issued a store credit card as part of this. In this case, you might encounter a similar issue if your installment payments are reported as a minimum payment due.
The good news is that, in the end, I didn’t have to pay off the card to get approved (I could have and offered to but it wasn’t necessary). Still, I came away with a new piece of knowledge that I honestly think is equal parts fascinating and frustrating. That said, while it was confusing at the moment, I do understand the reason why these figures might raise concern for lenders. On that note, this is why I’m thankful we worked with someone who could explain these things — but that’s a story for another day.
So, the moral of the story is that before applying for a mortgage, you may want to take a look at any financing plans you have on an Apple Card, store credit card, or elsewhere. Hopefully then you can either pay these off or explain them to your lender before they cause issues.