Should we pay off or wait?

[Anonymous]

OKay here is the deal, the loan officer ran some number including our credit score and DTI what we have according to our report.  Loan officer said with our DTI we only qualify for $260k loan.   If we wanted to qualify for more 600K plus we MUST paid off most of our installment loan first. 2 personal loan and 3 car loan (combined me and wife)...  My mid score for Mortage is 680 and my wife mid score is 730.  So they will go with my score since its the lowest.

Here is the kick, we have the money to paid off all our debt and we can do it.  IF we paid off all or most of our installment loan to lower down our DTI would this lower my mortage score?  With 680 score we qualify for only 3.5% down payment.  

We have 2 option and we don't know what to do so we need some input.

1. paid off or most of our installment, wait for a few months for our score to rebound back to 680 plus 

or 

2.  Wait for under writer or loan officer to tell us rather or not we should paid off now or wait untill they run our paper work officially?

[StartingOver10]

The LO's estimate of your ability to qualify should be spot on - that is their job.  The amount you qualify for is based on your DTI ratios.  Apparently your current debt load is reducing the amount of mortgage for which you qualify.  If you want to borrow more for your home, you will need to pay off (not pay down) your debt.  The formula uses your monthly payments of the new purchase + your current debt payments to determine the maximum amount you can borrow. It's all math. If you pay down your debt and not off, it won't help because you still have the monthly payment until the TL is paid in full.

Paying off your debt will not drop your score. The exception is if you only have one installment TL and a thin file, then your score will drop a bit initially when you pay off the only installment account.

As I remember, you have many installment accounts so paying them off won't hurt you, but will help you. If you don't have enough to pay all of the TL's off, then pay off as many as you can and leave the lowest monthly payment as the amount that is not completely paid off. 

[Anonymous]

Thanks for the reply..

my ONLY concern is that when I paid off all my installment loan my credit score will drop, right now i am in the mark of 680  i can not be any lower then that.  In my time line I have 4 installment loan.  The oldest is 2 years of the loan and the newest is 6months. I have the ability to paid it off all my installment loan I am just to afraid to pay them all off because of lowering my score.  So would paying all my installment loan will help me instead of hurting me since I have more than one installment loan?

[StartingOver10]

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@Anonymous wrote:

Thanks for the reply..

my ONLY concern is that when I paid off all my installment loan my credit score will drop, right now i am in the mark of 680  i can not be any lower then that.  In my time line I have 4 installment loan.  The oldest is 2 years of the loan and the newest is 6months. I have the ability to paid it off all my installment loan I am just to afraid to pay them all off because of lowering my score.  So would paying all my installment loan will help me instead of hurting me since I have more than one installment loan?

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If you are concerned about not having any installment loans for your score, then get the small $500 Alliant loan discussed in this thread http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Installment-tradeline-utilization-thread/td-p/4055989

There is no HP and the installment loan can be paid as indicated in the thread (borrow $500 for as long as the lender will allow, put in a savings account with $50 and pay down 95% in the first or second month and then pay $1/month).  This will satisfy the installment loan tradeline that you need and not interfere with the amount you can borrow for your home.  It is not the size of the TL but the fact of having one.

Pay off the other installment loans so you qualify for a higher mortgage amount.  

[cartwrna]

To add too what StartingOver10 said, if the loan will be paid off in 10 months or less, it is not counted towards your DTI. I'm not sure if that strictly goes towards the original pay off date, or if you can technically pay it all off besides 4-5 months worth of payments and therefore keep the trade line and not chance losing the points. It might be worth looking into if your worried about it.

[StartingOver10]

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@cartwrna wrote:
To add too what StartingOver10 said, if the loan will be paid off in 10 months or less, it is not counted towards your DTI. I'm not sure if that strictly goes towards the original pay off date, or if you can technically pay it all off besides 4-5 months worth of payments and therefore keep the trade line and not chance losing the points. It might be worth looking into if your worried about it.

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^^^this is lender specific. Fannie says 10 months, some lenders have overlays to make it less or even none. Check with your specific LO.

[cartwrna]

Good to know StartingOver10! I gain more and more knowledge everyday from this site, and to think my wife thinks I'm wasting life away on here LOL!

[KSK1912]

How much time do you have before you have to make a decision? couple weeks, couple months? One other thing you could try or consider is paying off the loans one at a time instead of paying off all at one time in the same months.

[Anonymous]

@cartwrna

You can always get a new wife, but not a new MyFICO forum.

[Anonymous]

When I paid off my car last month my score did drop. This is with still having 6 other open installment loans on my CR. My FICO8 score took a bigger hit than my mortgage scores but those did drop as well.