What to do?

[Anonymous]

These forums are great... thanks to all who have posted, I am learning a lot.

At this time next year, I would like to buy my first house. Unfortunately, over the next year, I will need a new car. My current car is on its last legs.

I can do one of three things:

Pay cash for the car (around $10K). I would get a loan and make agressive payments for one year.

Save for a down payment on the house (around $10K)

Pay down my student loan (around $10K leaving about $3K on the GSL)

I have no credit card debt with the exception of a small balance I keep on a card to show activity (5% of the card, 2% of my total credit availability).

My current scores from all the reporting agencies are 720-730. I would like to get them above 760 (as that seems to be the consensus figure for "great" credit).

What will put me in the best position to get a good interest rate for the home loan?

[Tuscani]

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flyfast wrote:

These forums are great... thanks to all who have posted, I am learning a lot.

At this time next year, I would like to buy my first house. Unfortunately, over the next year, I will need a new car. My current car is on its last legs.

I can do one of three things:

Pay cash for the car (around $10K). I would get a loan and make agressive payments for one year.

Save for a down payment on the house (around $10K)

Pay down my student loan (around $10K leaving about $3K on the GSL)

I have no credit card debt with the exception of a small balance I keep on a card to show activity (5% of the card, 2% of my total credit availability).

My current scores from all the reporting agencies are 720-730. I would like to get them above 760 (as that seems to be the consensus figure for "great" credit).

What will put me in the best position to get a good interest rate for the home loan?

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Personally, I would worry more about having the least amount if debt than having a larger down payment. Also, do not apply for any new credit until you have closed on your home.

Plus, I really doubt you would see a huge difference in rates and options if you score was 760. 720 should get you prime rates.

[Anonymous]

IMHO, I would save for the house downpayment.  I don't know where you live, but $10,000 is not going to get you far. The ideal is to put down 20% of the purchase price, or else you pay PMI (which is a waste of $ and is not deductible from income tax as mortgage interest is).  Plus you need several thousand $ for closing costs.  And if you put down less $, you are take out a bigger mortgage, so you end up with more debt.

Buy a used car.

Keep paying down the student loans.  The interest rate on the student loans is probably less than the interest rate on the mortgage will be.

It's good that you've got activity on the cards, but there's no need to carry a balance over -- it's just wasting money, so better to PIF.

Sounds like you are in good credit shape.  Good luck, and let us know what you decide to do!

[Anonymous]

Thanks for the advice. I am just starting the process and am learning a little bit everyday.

I will definitely get a used car or a lease (I only drive about 5,000 miles a year - so leasing is actually an option). I may just soldier on another year with the old car and keep it running so I have no vehicle debt showing.

From what I have read and learned, to get a federally insured loan I need 3% down. I need about the same for closing costs. Clearly everything I have read indicates that the less credit debt ("good" or "bad) that you have is better. I would love to walk into the bank or other lending authority with no debt... but that is not going to happen.

The houses and condos I am looking at are definitely below the 28% of monthly gross and all debt is well below the 40% that most lenders look for. I hope I am in good shape for all this. I know for most, buying a house is a wonderful experience. I am just a little overwhelmed by it all and want to make sure I do everything correctly.

Message Edited by flyfast on 05-07-2007 04:40 AM

[Tuscani]

Sounds like you are on the right path and will have that new home in no time!