Can paying off a car lease early help with DTI?

[Mike_B03]

I've heard mixed answers on this...

If you have a car lease of say $400 that is counting toward your DTI and have 18 payments left, can you make a $7200 payment ($400x18 months) and lower your DTI?

I had one loan officer say that yes, that is possible. Then I've had another that says no, car leases are not treated that way because the UW figures you'll just get into another payment after the lease is up..

That to me seems like an unfair assumption. While you could get into another payment, that payment could be much less (say $200/month) or you could just buy an older car cash down if you're tight on your budget.

What has you guys' experience been?

[tooleman694]

Why are you worried about your DTI, you got me worrying.

Iv heard paying off a lease doesn't work. I have 2 leases and thought about the sametime.

[Sunshine85]

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@Mike_B03 wrote:

I've heard mixed answers on this...

If you have a car lease of say $400 that is counting toward your DTI and have 18 payments left, can you make a $7200 payment ($400x18 months) and lower your DTI?

I had one loan officer say that yes, that is possible. Then I've had another that says no, car leases are not treated that way because the UW figures you'll just get into another payment after the lease is up..

That to me seems like an unfair assumption. While you could get into another payment, that payment could be much less (say $200/month) or you could just buy an older car cash down if you're tight on your budget.

What has you guys' experience been?

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The 2nd LO is correct. Car leases are looked at differently.

Do you have other revolving or secured debt you could pay down/off to lower your DTI?

[StartingOver10]

I've had customers that have had this issue and not only had to pay off the lease but by out the vehicle in order to eliminate it from the debt.

Just buying out the lease was not acceptable according to the underwriter. Naturally I wasn't given any reason by the underwriter so I can't tell you why the extra step beyond the lease payoff was required.

[tooleman694]

One thing I have thought about doing is paying off my lease and then financing the rest. In my case it would cut my payment in half.

[JM-AM]

Thats a great idea and works.

The issue that comes along for some with borderline scores is where it becomes a problem.

New INQ and new loan may give you a ding in your scores. If you have the room in your scores then there is no issue.

[MovingForward_2012]

For me, my car lease is split 50/50 so I would have the same monthly payment I have now (probably a little less) if I financed the residual value at the end of the lease.

It would be helpful to understand what your gross income is and the purchase price of the home.

Do you have another vehicle to use at the end of the lease if you return it and not lease another one?

[Mike_B03]

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@tooleman694 wrote:

Why are you worried about your DTI, you got me worrying.

Iv heard paying off a lease doesn't work. I have 2 leases and thought about the sametime.

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Just wanted to have a back up plan in case the lender's guidelines change or something. 

We were approved in DU at 55% and have already paid off a couple credit cards so are now at 50% by my calculation. If we were to pay off one the car leases (and we actually have 2 just like you, weird  ), it would put us at exactly 43%. 

I guess if it doesn't help then we can scrap that idea but I think it's BS. Heck, we could actually get by just fine with one car, we both work from home and its very very rare that both cars are being used. Then on top of that, we could certainly either pay off the car at the end of the lease term in 18 months, pay cash for a different car, or lease something else that is cheaper if we are tight on finances. I just think its dumb that they assume what you will do after the lease ends.

[tooleman694]

I wouldn't worry about it man, when you go FHA they go by the guidelines that they were using when you applied for the loan.

So if a big change happens but you got in before, you get to use the old rules.

They can't just change the rules while your in the middle of the Superbowl.

[chasmith]

Based on the reference to 43%, are you worried about the new guideliones issued yesterday for "stanard ssue mortgages" or some such by the CPFB?  Those take effect in one year from what I've read.