Wanting to clear student loan debt without destroying credit

[Anonymous]

I just graduated law school and am planing on moving out of state to practice. My wife and I bought a forclosure close to my school in 2014. We paid cash for the house to minimize costs. I am currently carring around 41K in student loan dept (my only debt). Our plan was to sell the home (just under 100k) and pay off my student loans and use the rest for a down payment on our "forever" home. I have a job lined up as a public defender which pays very little (50K) and my wife does not work. We should have somewhere around 40k to put down on a 185Kish home after we have cleared the student loan debt. I have a 747 FICO score. My concern is that as newly enployed, I will be considered risky by lenders. Would it be wiser to not pay off my student loan to maintain my FICO score untill after I get qualified for a home loan or pay off the debt ASAP and take the FICO score hit. Last time (8 years ago) I paid off my student loans early, I took a 40-50 point hit. I have around 4 months before I need to move. Any sujestions? 

[Anonymous]

Don't do anything without talking to a mortgage officer/underwriter first.

They will tell you if paying anything off will help you with approval/interest rate.

[SouthJamaica]

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@Anonymous wrote:

I just graduated law school and am planing on moving out of state to practice. My wife and I bought a forclosure close to my school in 2014. We paid cash for the house to minimize costs. I am currently carring around 41K in student loan dept (my only debt). Our plan was to sell the home (just under 100k) and pay off my student loans and use the rest for a down payment on our "forever" home. I have a job lined up as a public defender which pays very little (50K) and my wife does not work. We should have somewhere around 40k to put down on a 185Kish home after we have cleared the student loan debt. I have a 747 FICO score. My concern is that as newly enployed, I will be considered risky by lenders. Would it be wiser to not pay off my student loan to maintain my FICO score untill after I get qualified for a home loan or pay off the debt ASAP and take the FICO score hit. Last time (8 years ago) I paid off my student loans early, I took a 40-50 point hit. I have around 4 months before I need to move. Any sujestions? 

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I would pay them down to 9% or less but not pay any of them down to zero until after you close on the house. 1% to 9% in aggregate installment loan utilization is the sweet spot for your scores.

[Anonymous]

Good advice by ABCD.  Here is some more advice.

(1)  Get your credit reports optimized for the mortgage scoring models.  These are different from FICO 8.  A simple fast way to optimize your reports would be to get all your cards except one reporting at $0, with the remaining card reporting a small positive balance, like $15 say.  Is that financially doable in the next month?  The mortgage models especially like seeing the All Zero Except One (AZEO) thing.  How many credit cards do you have, btw?

(2)  Once you have your CCs optimized and the new balances are updated at the credit bureaus, pull your mortgage scores here at myFICO. 

I'd do this 1-2 step for both you and your wife.  That will help you know what your mortgage scores are now.

Lastly, when talking to a mortgage lender, I'd be very clear about wanting only advice and for them to NOT pull your scores.  Eventually they will need to pull them when you get pre-approved, but if they pull the scores in the next three months that will be an inquiry at all three bureaus, and then another inquiry at pre-approval.  Naturally you can show any lender what your scores are from myFICO but if you are just trying to get advice I'd avoid the hard pull.

PS.  You are correct that a loan payoff will cause your scores to drop.  For the mortgage model it may only be the EX score, but it will drop there.  There may be an advantage with respect DTI, but the mortgage lender can explain better.

[Revelate]

Paying down installment loans isn't very helpful for FICO scores when it comes down to getting a mortgage.  It may be beneficial to make room on your DTI calculation though.

As others have suggested I'd find out what my scores were after I prettied up my revolving utilization, and talked to an LO.  Paying to 9% is just leaving cash on the table, for federal loans at least pay it to like $10 and call it good and then just leave it there until the last payment on the loan.. but that only helps on EX when we're talking mortgage FICO's, whereas having a fat stack of cash is ALWAYS a good thing when it comes to mortgage underwriting.  Cash is darned close to king when it comes to mortgages as long as you can get above the FICO hurdle.

Personally unless my EX FICO 2 was keeping me from a higher tier, I wouldn't pay a dime towards my student loans in your shoes unless I flatly couldn't afford the house from a DTI perspective... but ultimately higher DP reduces your LTV anyway which does all sorts of goodness both for your rate and your DTI.