Morgage Loan: Pay off truck or

[Anonymous]

Hello everyone, im looking to aquire a mortgage in the next 4-6 mionths and I have a question on what to do regarding an inheritiance I had just recieved. I posted in this forum as it involves general credit, not just mortgage.

To give you a little history of my situation. I filed chapter 7 bankruptcy in 2014 and have had it successfully discharged. In Jan of 2015, I purchased a truck on a 3 1/2 year loan from the bank. My income is 80k year and my mean score is 640 FICO08.

Over the past year, I missed five payments outside of the 30 day window becasue of temprorary financial hardship. I was fighting child custody and legal charges got outside of 20k. My emergency fund was forfieted towards this.

I just recieved my inheritance and Im pondering what to do with it. In early september I looked into a mortgage but the broker was a little concerned because of my missed payments. She said that I would need to show several other payments to prove that I was finacially worthly. Before those missed payments, I never had an issue since my BK on anything.

My question is, do I pay off my truck loan with this money or do I keep making the monthly payment until I have a solid 12 months of on time payments. I know paying it off early will save me some money on interest and reduce my DTI, but it will not allow me to restore my payment history on a large ticket item. Ive never missed a payment on either of the two credit cards I have. All 100% payment history for the past almost 2 1/2 years.

I want to make the decision that makes the most sense towards getting a mortgage. The money id be losing in interest is nothing comparted to the 2500 I pay for rent each month. A mortgage on a home in comparison in my area is closer to 1500. I cant really downsize my home, its small, just area standard rate for a 4 bedroom house. (3 Kids)

What do I do?

[Anonymous]

bump

[StartingOver10]

There are several things going on in your post. I will address a couple of items and the others can address the rest.

1. Mortgage lenders do not use the FICO 8. Someone posted that their lender did, but that is an extreme exception. There are mortgage scores that the lender uses and you can obtain those scores here by getting a 3 B report and looking at the FICO scores typically used for mortgages. The mid-score of the 3 is used for qualifying purposes.
2. You mentioned a discharged Bk as of Jan 2015. You will need to wait at least 2 years (if you have not ever had a mortgage) from the discharge to obtain a mortgage.
3. A minimum of 12 months of on time payments with no late payments is required by the vast majority of lenders. Did you have any lates after your BK?  If so, this makes your file very difficult. 
4. What is your current DTI?  if you are going for a FHA loan, your DTI can be higher than if you are going for a conventional loan. The max total debt ratio for conventional is 43% to 45% (with compensating factors) and for FHA some lenders will go as high as 56.99% of your gross income. 

We really can't answer your main question as we don't know enough about your file - gross income and amount of your vehicle loan (monthly payment and balance).  

I just paid off my vehicle loan and lost some points. I was looking at my FICO 8s though and not my mortgage scores. It makes a difference.  Sometimes you want to pay off your vehicle in order to get your DTI in line and to qualify for your home loan. Other times you can't afford the points.  We don't know where you are as that info wasn't provided (neither the mortgage mid score was provided, nor the income nor the debt payments you currently have). This info is needed to give you better information.

One more thing - are you in a community property state and do you have a spouse? This makes a difference in community property states if you are going for a government loan (FHA, VA, USDA)

One more comment:  don't use a big box bank or a mortgage broker unless the broker can originate, underwrite and fund their own loans. If you use someone that only has the ability to put the lender with the borrower, the process can be excruciating. You need a knowledgeable loan officer when you have dings in your file.  

[SouthJamaica]

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@Anonymous wrote:

Hello everyone, im looking to aquire a mortgage in the next 4-6 mionths and I have a question on what to do regarding an inheritiance I had just recieved. I posted in this forum as it involves general credit, not just mortgage.

To give you a little history of my situation. I filed chapter 7 bankruptcy in 2014 and have had it successfully discharged. In Jan of 2015, I purchased a truck on a 3 1/2 year loan from the bank. My income is 80k year and my mean score is 640 FICO08.

Over the past year, I missed five payments outside of the 30 day window becasue of temprorary financial hardship. I was fighting child custody and legal charges got outside of 20k. My emergency fund was forfieted towards this.

I just recieved my inheritance and Im pondering what to do with it. In early september I looked into a mortgage but the broker was a little concerned because of my missed payments. She said that I would need to show several other payments to prove that I was finacially worthly. Before those missed payments, I never had an issue since my BK on anything.

My question is, do I pay off my truck loan with this money or do I keep making the monthly payment until I have a solid 12 months of on time payments. I know paying it off early will save me some money on interest and reduce my DTI, but it will not allow me to restore my payment history on a large ticket item. Ive never missed a payment on either of the two credit cards I have. All 100% payment history for the past almost 2 1/2 years.

I want to make the decision that makes the most sense towards getting a mortgage. The money id be losing in interest is nothing comparted to the 2500 I pay for rent each month. A mortgage on a home in comparison in my area is closer to 1500. I cant really downsize my home, its small, just area standard rate for a 4 bedroom house. (3 Kids)

What do I do?

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The best thing to do with the truck loan is pay it down to 9% of the original amount of the loan, but not to zero. That should give your scores a boost.

[disdreamin]

Personally, I'd put it aside in an emergency fund and keep paying on the vehicle as usual. It may take a significant number of on-time payments to get your file to the point where a mortgage is possible (just from what I've seen on the forums) and if I'm reading it right you have less than two years of payments left. If there interest rate is really high, that could influence things, but it sounds like payment history may be important to your mortgage plans.

[disdreamin]

Wait, you said you make $80k and your rent is $2500 a month?! That makes *just* rent 37.5% of your gross income (assuming the 80k was gross). That's insane! Not judging, just...wow! You have my admiration for making *any* on-time vehicle payments with rent that high. Wowza.

That said, five 30+ day late payments in one year sounds like it will make it a rough go. I still think payment history may be worth more than interest to you at this point.

[Anonymous]

Yes. I make 80k/yr and I pay rent of 2500 a month. However, I also have a SO that contributes to this so its not that bad. With 3 kids, the house I rent is area standard (North East).

Regarding my bankruptcy, it was discharged in July of 2014.  I am eligible for both FHA and VA loan respectively.  Just looking for the best option. Like I said I have had a credit card that I have never missed a payment on. Other than that, only other thing on my credit is my truck lease.

[disdreamin]

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@Anonymous wrote:

Yes. I make 80k/yr and I pay rent of 2500 a month. However, I also have a SO that contributes to this so its not that bad. With 3 kids, the house I rent is area standard (North East).

Regarding my bankruptcy, it was discharged in July of 2014.  I am eligible for both FHA and VA loan respectively.  Just looking for the best option. Like I said I have had a credit card that I have never missed a payment on. Other than that, only other thing on my credit is my truck lease.

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Okay, I'm confused by some of the information you've shared. In your original post, you said "In early september I looked into a mortgage but the broker was a little concerned because of my missed payments. She said that I would need to show several other payments to prove that I was finacially worthly." So are you eligible for the loans and will qualify, or is there an issue as your original post implied?

Also, do you have *a* credit card as your most recent post states, or two credit cards as stated at the beginning of this thread? There seem to be some inconsistencies in the information you are posting. Perhaps you could clear these inconsistencies up and people would be able to offer more helpful/useful advice.

Bottom line, if you were told by a broker that you need to show "several other payments", I'd leave the auto loan be and just pay it down faithfully. The inheritance will be a nice cushion to be sure you don't miss any more payments.

[Anonymous]

Eligible as in the sense that Ive passed the required time threshold. Im eligible for va since i served in the military.  Regarding the credit card, yes i have two. Both are at the same bank. One is secured with 0 balance and one is unsecured.

[StartingOver10]

Since you have access to a VA loan, there is no question that a VA loan is better than an FHA loan - for two reasons:

• You do not have to pay UFMIP with a VA loan but you do with an FHA loan
• You do not have to pay monthly MIP with a VA loan but you do with an FHA loan