04-10-2012 05:35 PM
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?
04-10-2012 05:43 PM - edited 04-10-2012 05:44 PM
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?
04-10-2012 06:01 PM
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.
04-10-2012 07:09 PM
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...
04-11-2012 07:28 AM
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.