I need a plan

[jk9270]

My wife and I want to buy a new home.  Our current house is financed with an FHA loan, and is apprasing for about what we owe on it now.  Our only other debt is a car payment of $550 that has a balance of just under $10K that I could pay off.

My question is should I pay off the car to improve DTI or should I pay down balance on our current home and refi conventional so I can buy the new house FHA which will require a smaller DP?

Of course the loan officer wants to sell two loans, but I'm not sure which is the best plan.

[Anonymous]

Refi'ing the second house with 10K paid down on the mortgage would do little to nothing to help the new home purchase.  It would not drop your payment that much.  In either case, the decision is going to be based upon DTI, income, and and FICO factors.  You should be able to go FHA in either case as long as you can qualify with your income/DTI/FICO levels.  And, FHA will be the lowest down payment.  Now, if you are needing to count rental income on one of the properties for approval then you have problems (assuming you plan on renting one) because you do have to have certain equity amounts as well as proof of rental income.

I would say paying the car loan off would give you by far the best DTI kick and then maybe use that 550 per month you were paying on the car to pay down the first laon a little faster to gain some equity.

Good luck with it all.

[jk9270]

I'm not being clear.  The only reason I would refi our current home, which we have renters lined up for is, to conventional, is so that we can buy the new home FHA and have a smaller down payment requirement.  I agree 10K reduction in principal wouldn't matter much, but a 1.5% reduction in interest would be a side benefit for the DTI.

So I guess my question boils down to which would be better,  A $200 reduction in DTI from refinancing our current home conventional and the addition of being able to buy the new home FHA with a small DP,  Or Paying off the car and getting a $550 reduction in DTI but then needing a bigger DP?

Our credit scores are good enough so I don't think that will be a problem either way, But the DTI vs. DP question is confusing the issue.  Anyone want to buy a house in SE Michigan cheap?

[Anonymous]

I thought you could have more than 1 FHA mortgage, maybe I am wrong.

[Anonymous]

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@Anonymous wrote:
I thought you could have more than 1 FHA mortgage, maybe I am wrong.

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It looks like you can only have more than one FHA loan at once under certain circumstances - relocation, family outgrowing the house, one of the borrowers leaving a jointly owned property..

[SonorityGenius]

My advice is to sell your current home THAN buy a new one..