I'm Stuck. . .

[Anonymous]

Ok, I have 2 auto loans, one for 334/mo and the other 397/mo.  These are both at very high interest rates.  With the mortgage calcs I have used I would only qualify for a very small loan amount (I forgot the exact number but its peasly, under $40,000) 

My annual income is $40,500.  If I refinance the loans through my credit union I could save $250/mo in auto pymnts and the calculator (thru bankrate.com) shows I would qualify for more than my target amnt wich is $100,000.

I have read so many times not to buy a new car or apply for any new credit, would this be in that same category?  I know I would take a hit with the hard pull and possibly AAoA but I feel like it would be more beneficial in that I would qualify for so much more.

I have been stressing about this for months and I need to make a decision.  We are hoping to get approved in May/June.

[WannaHouse]

Hmmmm....I am by far no expert here, but lowering your debts by $250.00 a month would seem to a good choice.

I really think this is may be a question for an LO though. 

[Anonymous]

The idea is to not take on any NEW debt.  refinancing an old debt shoudl be ok as long as your FICO is high enough to take the small hits for the new accounts/drop of AAoA.

The underwriter will probably ask about them but once you explain the refi's and show the lower payments that should not be an issue.

I would want to have a 50 point margin of error or so on my FICO scores above the minimum though because depending upon your actual file you could easily see a 20-30 point drop from the new accounts. 

[Anonymous]

Looking at your midscore of 626 (assuming that is still about right), I would be leary.  It is very likely that you would take more than a 10 point drop in points temporarily.

[Draco]

We're in somewhat the same boat.  We have a high interest car loan with 4 years left that would lower our DTI ratio about $180 if we refinanced.  Our LO told us to hold off on that for now and see if we can get the highest possible FICO before we refi the car.

[Anonymous]

To Draco...

I would not wait unless you were expecting a huge point increase.  The sooner you do it, the sooner you can get teh FICO hit out of the way, lower your payments, and probably skip a months payment.  You do not want to wait until the last moment to save .5% and risk dropping your score at the last moment.  If you are talking a 3-4% difference or something that may be another issue, but what factors are coming into play that are going to guarantee you that big of a FICO increse? 

[Draco]

We're waiting because last month we paid off/down our CC debt from 95% UTL to below 20% with our tax refunds.  Credit card companies are taking up to 30 - 45 days to report new paid off balances.  We have already seen a 22 pt FICO jump on one of my reports that had two of the six new credit card balances report last week.  Our patience seems to be paying off so far.