@Anonymous wrote:
Here's the deal:
I have a 2004 Mustang with 150k miles on it. The 10-day payoff for the vehicle is $6300 but the vehicle will only trade for $1000. I still have 3 years left on the auto loan at an astonishing 28% interest and will end up paying just over $10k at the end of my loan. So basically over the next 3 years I will be paying $10k for a car that's worth $1k by paying $280/mo. in car payments.
The account is only about 2 months old (so that has no positive impact on my credit report) and I am right on the border of my DTI ratio to qualify for a decent mortgage.
So, my rationale is that if I replace the crappy loan with a loan with better terms, I will lower my DTI because the monthly payments won't be as high and the new account won't have a negative impact on my report because the other account was new as well.
Is this a valid argument? I would agree that you have a valid argument with yourself to justify the reasoning. But with-out knowing more details about your credit scores, history, income, etc etc it is hard to determine what would be in your best interest for home ownership. Since your interest rate is very high for auto loan that is fairly new that gives me a little guessing detail to say your credit is not the best, but I could be wrong. If your credit is weak and borderline for mortgage approval in my opinion I would not do anything to cause my scores to fluctuate unless I know 100% it is fluctuating upward in your favor. An INQ alone can cause you enough point lose to disqualify you for mortgage approval. It is not worth the risk in my opinion.
I just made an offer on a house tonight and don't want any delays in closing since preapproval wasn't easy for me to come by. However, my old car is needing a new transmission, starter, alternator and tires, all of which I cannot afford, so I'm kind of stuck trying to do something at a dealership, fast! Now this confuses the subject more. You said you have a loan which is a few months old now for a Mustang. So are you saying the Mustang needs all those things already?
Any insight about the effects of the new loan on my DTI ratio or credit score are appreciated!
In my opinion home ownership is just not for you at this present time.
You should fix up some of the credit issues you have. Either repair the car you presently have or roll over the debt into another loan. Rolling over the debt into another loan may not fair well for approval in my opinion. If you would have qualified for a better loan rate I would think you knew that before you agreed to buy a car with 28% interest, you didn't have many options.
You have some problems that need to be addressed, and in my opinion I would sort out those problems and probably wait another year or two before I would worry about buying a home. You state you can not afford to fix mechanical problems on a car, and looking for a way out. What will happen when you need to fix something on your home? Sell the home? Refinance the home? Trade the home in? Take some more time and think about what you want and the best way to acheive it, do not just jump in and expect things to work out.
Good Luck
May all your dreams and wishes become a reality!
