Short answer
It can help, if it's the right debt. For conventional loans, Fannie Mae lets the lender leave out a credit card's payment if the balance is paid off at or before closing, and you don't have to close the account. An installment loan, such as a car loan, paid down to 10 or fewer remaining payments generally doesn't need to be counted either. Talk with your loan officer before you move money, because cash spent on debt isn't available for your down payment or reserves.
What happens if I pay off a credit card?
A credit card's minimum payment counts in your debt-to-income ratio. If you pay the balance off at or before closing, the lender doesn't have to count a payment for it, and you can keep the account open. Closing old cards can lower your credit score, so keeping them open is often better.
What about a car or personal loan?
Installment loans with more than 10 payments left usually count. If you pay one down so 10 or fewer monthly payments remain, Fannie Mae's rules generally let the lender leave it out. The lender still looks at your overall history, and a large payment that remains can still matter. FHA is different: HUD says you can't pay a loan down just to get under 10 months. See which debts count in your debt ratio.
What's the tradeoff?
Every dollar used to pay debt is a dollar not used for your down payment, closing costs or reserves. Sometimes keeping cash and qualifying for a little less is the better choice. Tom can run both versions so you can see which gets you the home and payment you want. See the affordability calculator and where your down payment can come from.
Which debts can't be ignored?
Child support and alimony you're required to pay for more than 10 more months count, as do student loans, even in deferment, under their own rules. Leases generally count no matter how few payments remain. See student loans and your mortgage and owing the IRS.
When should I pay it off?
Ask first. Paying a card down a month or two before you apply can also raise your credit score, while paying a debt at closing is handled through the closing statement. Moving large sums between accounts right before you apply can mean extra paperwork; see after you apply.
Sources
- HUD Single Family Housing Policy Handbook 4000.1, Update 18 (August 2026), General Liabilities and Debts (TOTAL)
- Fannie Mae Selling Guide B3-6-07, Debts Paid Off At or Prior to Closing
- Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
Checked November 2, 2026. Rules and dates change, so confirm current details before you rely on them.
General information only, not tax or legal advice. Program availability, eligibility and terms vary by lender and are subject to change and to underwriting approval. Not a commitment to lend.