Does car loan affects Home mortgage approval?

DTS · ‎11-03-2010

Hi

I am searching new home actively . I have great credit score ( 782) with 20% down payment. I got pre approved from one of the lender 3 months back.

However I could not found my liking home in summer . So just 1 week back I bought car with 2 years finance with mortgage approx $500 / month.

Now I found home with my criteriae and applying for mortgage. My concern is my car loan ( for 2 years) which I applied and received last week.

Questions:

1) Does this affect my home mortgage application?

2) This will generate new enquiry on my credit report. So far I have 3 enquiries ( Oct 2009,April 2010 and July 2010 ) out of which two are just for getting pre approval letter from banks. and not really apply for credit.) will this be issue on home mortgage approval?

3) Is it good to pay car loan off before I apply for home mortgage?

What is good strategy so as it does not affect my home mortgage?

Any help is appreciated.

Thanks in advance.

DTS

Mark_in_Pasadena · ‎11-03-2010

@DTS wrote:
Hi
I am searching new home actively . I have great credit score ( 782) with 20% down payment. I got pre approved from one of the lender 3 months back.
However I could not found my liking home in summer . So just 1 week back I bought car with 2 years finance with mortgage approx $500 / month.
Now I found home with my criteriae and applying for mortgage. My concern is my car loan ( for 2 years) which I applied and received last week.
Questions:

1)     Does this affect my home mortgage application?
2)   This will generate new enquiry on my credit report. So far I have 3 enquiries ( Oct 2009,April 2010 and July 2010 ) out of which two are just for getting pre approval letter from banks. and not really apply for credit.) will this be issue on home mortgage approval?
3)    Is it good to pay car loan off before I apply for home mortgage?

What is good strategy so as it does not affect my home mortgage?
Any help is appreciated.
Thanks in advance.
DTS

What's your current home-only DTI ratio for your target price-range? What's your overall DTI ratio for your target price range + outstanding debts (credit card minimums + installment loans like this)?

If you're well below 45% overall DTI, then it's generally not necessary to pay the car loan before you apply for a mortgage.

Your score is excellent and will still stay above 750 even with this new inquiry + new loan...you'll regain your points back as the new loan and inquiry age in the next 6+ months.

DTS · ‎11-17-2010

Thanks Mark_in_Pasadena

I understand DTI means ( Debt To Income ) on monthly basis. ( I assume it is gross income )

my home only DTI ( home only includes estimated monthly mortgage for new home with Taxes , insurance and PMI if any) is : 27%

my overall DTI : ( estimated new home payment (as above) + my current home mortgage + my new car loan monthly payment + credit card minimum ) is : 38 %

So I think I don't need to rapay car loan.

Thanks very much again.

DTS

Anonymous · ‎11-17-2010

The only concern may be if the new loan shows up and your FICo drop s a fe wpoints putting you into a different rate than the 780 score does. I doubt this is the case, and even if it is it shouldbe very negligible. If total DTI is under 40% then with 20% down and 750+ FICO this should be a pretty slam dunk case as long as there are no issues on the home or on qualifying income.