Back-end ratio & revolving/installment accounts question

[Anonymous]

Hi,

I am in the process of applying for a first time home mortgage and have a question regarding the mortgage application. My aim is to qualify for a larger mortgage amount:

My annual income is about $73k without OT and my wife’s is about $19k. My FICO score is 759 and my wife’s is 639. I have a single revolving debt (credit card) with a $21k balance, and a credit limit of $100k so that my debt to credit ratio is about 21%. I also have two installment balances ( 2 car leases) of $17k total and a credit limit of $76k so that I have a credit to debit ratio of about 22%. My wife has $zero revolving and installment debit. The minimum monthly payment required on my credit card is about $550, and the monthly car payments are about $772 total.

We are looking to buy a house with a value of about $250k-$300k. Because of my wife’s low FICO score, I plan on applying to the mortgage alone. My credit union offers a 30 year fixed rate of 4.875%, a 3% down payment, and a front-end ratio of 28% and a back-end ratio of 36%. I believe that I shouldn’t have an issue with the front end ratios. However, I assume that having a combined monthly payment of ($550 credit card + $772 car leases) = $1322 will exceed my back-end ratios. So I am planning on tapping into my savings account and paying off the credit card to eliminate the $550 monthly payment. Which leaves me with $772 showing on my credit report for my car leases which still makes my back-end ratio higher that what it needs to be to qualify for a mortgage of $250k-$300k.

My question is should I then pay all my future car lease payments (24 months on one and 18 months on the second) using my credit card so that instead of my credit report showing a monthly payment of $772 for two car leases, it will instead show a monthly payment of about $16k * 2.5% = $400 a month for a credit card?

Thanks in advance for your help,

Liverpoolfc

[Anonymous]

There isn't any way to pre-pay leases........the minimum on each will report monthly no matter how much you pay it down!

[Anonymous]

Can your wife refi on or both of the cars into her name?  Maybe see about buying one of them outright with a car loan with her on it?  That would remove it.  Also, mel is right.  the lease will still show up until the lease is up since it is a contractual payment, not a loan.

How much OT do you make in a year, and have you been recieving it for the past 2 years.  If your w2's can show the overtime for 2007 and 2008 then they should be able to count that.

The other option (and maybe the best as it will help build your wife's score) would be to go ahead and put her on the loan and use her income.  Her score will always be low until there is some credit on it to build it.  Take the hit on a slightly higher interest rate as a way to build her credit and as a way to get into the house you want now.  Better to get the house you want now in this market at a slightly higher (although still very historically low) interest rate by using your wife's credit than not get what you want and decide to buy bigger in a year or two when the market is on the way back up.  My guess is even with her on the loan you can still get in the low 5's and get a very easy/quick approval.  Just my 2 cents. 

[WannaHouse]

I also think you should apply with your wifes income as well. Once you go see the LO, they can tell you if you should pay off the 21K to help you qualify better. Losing the $550 a month payment and adding your wifes 19K a year, may do the trick for you.

Good Luck!!

Message Edited by WannaHouse on 02-16-2009 11:56 PM

[Anonymous]

Thanks you all for the information. I did not know that pre-paying a car lease will not prevent the payment from showing on the credit report! Good to know. I guess knowing this information, we will start shopping around using my wife's income as well.

Best regards,

LiverpoolFC