What looks better to a lender?

[Anonymous]

For a mortgage....

Car loan 62 of 72 payments left $19K owed of an original $25K balance w/ $13k in savings

Or

Car loan with 62 of 72 payments left $22K owed of an original $25K balance w/ $16K in savings

I plan on buying this fall and was wondering if it would make a difference either way.  The car loan is 5.99% for 72 months that I just purchased.  I think it makes more sense to pay down the loan when I only get 4.25% for savings, but wasn’t sure if more cash would look better to a lender.

I plan on purchasing a home in the $160k to $180K range.  All 3 credit scores over 750, no credit card debt and the car payment is $420.  I plan on putting $10k down and keeping the rest of the cash for repairs furniture etc.

Any advice would be greatly appreciated.

Thanks.

[Anonymous]

How much debt you have doesn't matter to an underwriter, only the debt to income ratio.  The DTI ratio is a function of your monthly payments, not the balance.  Either way, you still have a payment of whatever your car payment is, at the time of application. 

If it were a revolving account, I'd say the opposite for two reasons:

The utilization % of a revolving account matters to your FICO score, but the utilization % doesn't matter on an installment loan like a car loan

The monthly payment reported to the bureaus on a revolving account usually does decrease as you pay the credit card down.  For an installment loan, the payment is the payment, until it's paid off.

If you actually could pay it down to where you have less than 10 payments remaining, then it would help your DTI since they don't generally count installment loan payments when calculating DTI if there are less than 10 payments remaining.

My gut says just keep the cash.  Even though you lose a slight amount of interest, it's not enough to make the difference, and cash is king.  Liquidity is important even if just for peace of mind.

[Anonymous]

I agree w/ Joe77 making the extra payments on the auto loan will not effect the decision of your loan it would be better to have the extra money in the bank to use towards closing costs or reserves.