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alessandrom
Posts: 72
Registered: ‎12-20-2012
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looking to finance a vehicle.

Greetings everyone I'm looking to finance a vehicle I have the cash to purchase a decent car on the spot however I figured this loan reporting will boost my credit drastically (only have cc loans on file) my question is does having a lot of credit card inquiries hurt my chances of being approved? I have never applied for mortgage or auto loan thank you guys



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Revelate
Posts: 9,477
Registered: ‎12-30-2011
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Re: looking to finance a vehicle.


alessandrom wrote:
Greetings everyone I'm looking to finance a vehicle I have the cash to purchase a decent car on the spot however I figured this loan reporting will boost my credit drastically (only have cc loans on file) my question is does having a lot of credit card inquiries hurt my chances of being approved? I have never applied for mortgage or auto loan thank you guys

Nah, FICO score determines more on APR you receive than actually getting approved, I wouldn't sweat the inquiries in the slightest... especially as auto loans are the easiest of any loan product to be approved for.

 

I would agree that financing makes more sense from a FICO perspective, but you may want to hammer the principle down quickly such that you don't pay nearly as much in interest charges over the course of the loan.

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alessandrom
Posts: 72
Registered: ‎12-20-2012
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Re: looking to finance a vehicle.

I agree with you,However im looking to buy a home in a couple of years and i was guessing that paying this auto loan will look very good to the home lenders. Correct me if im wrong im new to all this and thank you for the advice




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StartingOver10
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Re: looking to finance a vehicle.

[ Edited ]

No, the auto loan won't help with a house loan. In fact, it affects your DTI directly - dollar for dollar in some cases.

 

If you go into a mortgage lender without an auto loan they *assume* you will never have one and won't input one into your file. If you do have an auto loan, they assume you always will have an auto loan and use the monthly payment in your back end ratio. If the auto loan is large enough or the monthly income small enough, then the auto payment can actually reduce the amount of house payment for which you are qualified. I have seen some families actually not be able to buy because they have two huge auto loans eat up what would be the allowable mortgage payment.

 

So if you can possibly work it out, get the house before you purchase any vehicle with a payment. (And leasing a vehicle is worse.)

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Revelate
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Re: looking to finance a vehicle.

[ Edited ]

alessandrom wrote:

I agree with you,However im looking to buy a home in a couple of years and i was guessing that paying this auto loan will look very good to the home lenders. Correct me if im wrong im new to all this and thank you for the advice


It'll help from a mix of credit perspective if you don't have much in the way of installment history.  Nobody (well hardly any) uses a Mortgage-enhanced score for mortgage loans, and as such it's no different than what it would count as in the generic FICO model.

 

If you don't have an auto loan and need a car, then I certainly suggest financing a car; however, I wouldn't buy a car just for FICO purposes. StartingOver is definitely correct if the car is not paid off (or mostly at least) by that point, it will be factored into your DTI calculation and that's a straight negative from a mortgage perspective.  If it's paid, I'm not certain as to whether it would help underwriting at all or not... if it is factored at all it's probably so far down the list of importance to be near irrelevant when it comes to underwriting a mortgage.

 

Starting Score: EQ 561, TU 567, EX 599* (12/30/11, EX lender pull 12/29/11)
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alessandrom
Posts: 72
Registered: ‎12-20-2012
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Re: looking to finance a vehicle.

Thank you so much for the opinions I will definitely explore my options and make a decision based on it really do need a vehicle though and some cc lenders have turned me down for not having any other loans other than ccs so what I might do is finance giving about 50 percent down payment is this a good idea? By the way your words are so helpful you guys should be getting paid for all this!!



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Revelate
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Re: looking to finance a vehicle.

[ Edited ]

alessandrom wrote:
Thank you so much for the opinions I will definitely explore my options and make a decision based on it really do need a vehicle though and some cc lenders have turned me down for not having any other loans other than ccs so what I might do is finance giving about 50 percent down payment is this a good idea? By the way your words are so helpful you guys should be getting paid for all this!!

Well, if it were me, I'd put down the minimum downpayment required, and then if it were a higher interest rate than I was willing to tolerate, start kicking extra cash to it above your regular payment.

 

Alternatively if I got a great rate, I'd likely do something else with the cash.  Being cash flush is never, ever a bad situation to be in.  

 

There's a few reasons for the first approach: some lenders will push your payment date way out into the future if you pay extra and so you can maximize your tradeline length with minimal interest paid... also if you put down 20%, then kick in 30%, it dramatically changes your amortization curve and quite often larger loans have smaller (may not be significant) APR's associated with them if you look at the various auto lender financing tiers.  

 

I could pay off my current auto loan immediately but it's not hurting me much financially, so I'd personally rather have the increased length on the tradeline from a FICO perspective; that said, for when it comes to getting pretty pre-mortgage, I will absolutely be paying it down to under the 10 month remaining mark to get it excluded from a DTI calc, or maybe pay it off completely depending how much free cash I have.  Free cash is a good thing when it comes to mortgage underwriting.

 

Edit: if this is your first auto loan, you're going to want to look at re-financing it most likely in the future anyway; not a big deal, just be aware that the initial interest rate isn't likely what you're going to get later... in my case even with my shoddy credit report I went from 19.35% -> 5.99% on a refinance, so it can be done moderately easily.  You may qualify for a sweetheart dealer financing deal anyway depending on your scores which I suspect are better than mine now, and almost assuredly better than what mine were initially.  Oddly, from a pure FICO perspective with the way WFDS does their payment date, I would've kept the 19.35% APR had I known I was going to stumble into additional cash for a few months... if I had cash to just buy the car outright, personally I'd play stupid FICO tricks in terms of tradeline farming :smileyhappy:.

Starting Score: EQ 561, TU 567, EX 599* (12/30/11, EX lender pull 12/29/11)
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alessandrom
Posts: 72
Registered: ‎12-20-2012
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Re: looking to finance a vehicle.

That makes sense thank you for it educated thought I actually might consider doing this it makes a lot of sense thanks!



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MovingForward_2012
Posts: 3,406
Registered: ‎12-19-2012
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Re: looking to finance a vehicle.

Hmmmm... I'm not so sure leasing a vehicle is worse as you have a lower monthly payment plus you are only financing the use of the car over 12-36 months, not the full purchase price of the vehicle. My auto lease actually improved my DTI for my mortgage. As if I financed, my monthly payment would have been $150 more plus I would have $35K total debt on my credit report versus the $18K I currently have for the lease. The other nice thing about a lease, is you have minimal maintenance as you don't have to worry about the crap that starts breaking at 100K miles...been there done that. So if you can't qualify for a mortgage with your credit, getting an auto loan would help your credit score. In fact, it was an auto loan after BK that really boosted my scores. As for qualifying for less house, as others said, that is income dependent. I make $96K a year and still got preapproved for more house ($360K) than I needed with a $536 per month lease payment on a luxury sedan. YMMV
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StartingOver10
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Registered: ‎03-06-2010
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Re: looking to finance a vehicle.

[ Edited ]

Qualifying for a mortgage is not only income dependant but also dependant upon your actual ratio's which consists of the debt (both front and back end).


MovingForward_2012 wrote:
Hmmmm... I'm not so sure leasing a vehicle is worse as you have a lower monthly payment plus you are only financing the use of the car over 12-36 months, not the full purchase price of the vehicle. My auto lease actually improved my DTI for my mortgage. As if I financed, my monthly payment would have been $150 more plus I would have $35K total debt on my credit report versus the $18K I currently have for the lease. The other nice thing about a lease, is you have minimal maintenance as you don't have to worry about the crap that starts breaking at 100K miles...been there done that. So if you can't qualify for a mortgage with your credit, getting an auto loan would help your credit score. In fact, it was an auto loan after BK that really boosted my scores. As for qualifying for less house, as others said, that is income dependent. I make $96K a year and still got preapproved for more house ($360K) than I needed with a $536 per month lease payment on a luxury sedan. YMMV

 

 

If the OP leases a vehicle and it is too much vehicle for his income, then he has to do more than just buy out the lease, he has to purchase the vehicle. I have had customers of mine that had to go through this when they had leased a vehicle first, before buying a house and their payments were too high to support both the house and the vehicle(s) payments. It creats a real mess, that's why I said "worse". If, however, the OP is buying a vehicle well within his ratios then it doesn't matter from the mortgage perspective if he leases or buys. There are other items to consider.

 

Many first time home buyers don't keep in mind their back end ratio when looking to acquire a vehicle. That was my point.


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