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Regular Contributor
Cyrion
Posts: 192
Registered: ‎12-06-2008
0

Refi car loan before home purchase?

We are looking to buy a home in the next three months or so. We have two car payments, one of which is higher than I like (mine). I could refi it and get the payment cut in half, but how will that look going on my credit reports three months before getting a mortgage?

Contributor
seemund
Posts: 90
Registered: ‎03-29-2010
0

Re: Refi car loan before home purchase?

[ Edited ]

Your credit will take a hit for applying for credit (auto loan), but it will lower your DTI (debt to income) which could help you qualify for a higher amount.

 

Questions to help you decide what's better for you:

- What are your current FICO credit scores? 

- What is your current DTI, and how much would it decrease by refinancing?

 

 


Starting Score: 700
Current Score: 749 EQ / 760 TU
Goal Score: 760+


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Regular Contributor
Cyrion
Posts: 192
Registered: ‎12-06-2008
0

Re: Refi car loan before home purchase?

We are looking at an FHA loan and from what I understand I need a DTI of 41% to qualify? Currently we are at about 44% and trying to get it paid down. The refi will drop it into the upper 30% range. Scores are currently in the 660 range, which from what I can find is okay for an FHA loan.

 

I keep going back and forth on this trying to decide whats the best move.

Frequent Contributor
cassembler
Posts: 470
Registered: ‎02-07-2011
0

Re: Refi car loan before home purchase?

Very similar boat... Depending on what your remaining balances are, you could pay one of them off before applying... This saves the car payment and (depending on the state) lets you drop to minimum liability insurance, saving on two fronts...

 

Of course, that will directly affect liquid funds for down payment and closing, but it might be worth putting off the house for a few extra months...

"Credit is purely a cash flow tool. Thinking of credit as extra money you didn't have before makes it an EXPENSIVE cash flow tool."
Super Contributor
DallasLoanGuy
Posts: 6,132
Registered: ‎07-03-2007
0

Re: Refi car loan before home purchase?

the prudent thing to do would be to apply for the mortgage now.

let the lender pre-approve.

 

if debt ratios are a little high and affecting the preapproval... certainly refi.

if not... flip a coin

 

i let my people do this all of the time..... some of them anyway.

 

how will an underwriter look at it? they will look at it how you tell them to. write a letter of explanation on all inquiries. explain that the auto inquiry was to get a better rate and lower payment. <= then THAT will be the way they look at it.

 




* While I try to visit the forum often, please feel free to contact me directly with a link to your post if I fail to answer a follow up question.

* Lending across the entire 'Great State of Texas' since 2004
Regular Contributor
Cyrion
Posts: 192
Registered: ‎12-06-2008
0

Re: Refi car loan before home purchase?

Thanks everyone. I applied for the refi and was approved, my payments went from $495 to $295. Yay :smileyvery-happy:


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