Should I pay down my student loans completely before applying for a preapproval

[Dalanar]

Hello guys,

I have about $5K left on my student loan.  I'm putting about $400 a month on it.  I will start looking for a mortgate preapproval probably in the next 4 months.  Is it better to pay off this $5K or leave a little left before I talk to the bank?  THe reason I ask is that this is the only active installment loan I have on my credit profile.  No car payments or anything.   The other credit items are all revolvers.   I am just afraid that a lack of an installment loan may hurt my credit picture.

THanks. 

[frugalQ]

what is the minimum payment due?  does that have a big impact on your DTI?  If so, how many months do you have left to pay?  I believe the rule is that if you have less than 10 months to pay on an installment, it's not factored into your DTI.

If this is the only installment loan you have, it's probable that you will lose points once it reports as closed.  However, if your scores are fairly high, the loss of points may not make a difference in the mortgage process. 

Good Luck!

[StartingOver10]

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@frugalQ wrote:

what is the minimum payment due?  does that have a big impact on your DTI?  If so, how many months do you have left to pay?  I believe the rule is that if you have less than 10 months to pay on an installment, it's not factored into your DTI.

If this is the only installment loan you have, it's probable that you will lose points once it reports as closed.  However, if your scores are fairly high, the loss of points may not make a difference in the mortgage process. 

Good Luck!

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^^That rule varies from lender to lender and also varies by the market - Chase counts the debt until it is paid off.

Others will only drop it off your DTI after 6 months.  So really ask your LO.

Other than that one thing, frugalQ nailed it.

[frugalQ]

I didn't realize that it varied. I guess there are overlays for everything. Lol.

[StartingOver10]

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@frugalQ wrote:
I didn't realize that it varied. I guess there are overlays for everything. Lol.

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That's for sure!  Even the banks change their own guidelines depending upon the market. Makes looking for a loan always interesting...

[Anonymous]

My personal thoughts on student loans is if you can afford the payments and it is not a detriment to your overall plans & goals, just make the payments. In my case, my SO's loans just get paid because the amount owing is quite a bit ($40k) and is isolated to her credit file. Plus, I am able to put that money in to play and generate returns that exceed the interest rate and payment so it is a win-win in that it gets paid & boosts her credit while not affecting our lifestyle.

So for us, there is no benefit to pay it off.