how does contributing to a traditional IRA affect an application for a mortgage? Since the contribution lowers Adjusted Gross Income, does it reduce the "income" that would be counted towards paying down a mortgage loan?
No, your income is not effected by contributions to savings, so long as the contribution is voluntary. Your use of funds can be a factor that may put your ability to pay in question. Asians are some of the best savers in the country for example, I have encountered issues where someone was saving more than half of their income and it had been a long standing practice. There was more of a tendency to consider what they were actually living on. Credit is then viewed more carefully, if there had been credit issues it can show where priorities may be, they would rather save than pay on time. If credit is very good, it's a non-issue.
The guidelines for your debt to income ratios use your gross income, so as long as you are not obligated to contribute you should be fine, if you fall into other concerns you can change your contribution simply to show you are addressing the need for additional funds being available for debt service. :)
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