Will a new auto loan lesson my chances of getting approved for a mortgage?

[750orbust]

This is my first post here and first of all let me thank all of you for your wisdom and advice, I've already learned so much. So my story starts here. I have been renting for the last year and just signed my lease for a second year. I applied for a mortgage right after signing the new lease but my LL is a realtor and told me that if I was would use him as my realtor that he would release me from my lease if/when I decided to buy. So I applied for the mortgage (since I'd rather make house payments rather than continue throwing my money away on rent) and was denied, barely. I don't remember which score was which but one score was 584, one was 614 and the last was 634. My lender told me that if the 614 had been a 620 I would have qualified. She told me that the main reason I was denied was because I didn't have enough revolving credit. The simple breakdown of my three reports was three years perfect history auto loan financed through my credit union, a recently paid off four year loan through one of those rip you off loan places, again perfect history (to bad it was paid off though), and then my negatives. One utility collection reported TWICE on my report by two different CA's (contacted the original creditor and found out they actually owed me money! So got that one taken care of. Two bad checks my wife wrote to a department store that I was able to pay in full and was granted a complete deletion by the CA, and one utility that I wasn't able to get deleted but is now paid in full. Other than that all that's on there now is a couple or three small medical's that I hope to have paid off in the next six months or so.
So now the set up to my question. My mortgage lender was very helpful and told me that it wasn't that I had to much negative credit (although what I had wasn't helping) but I didn't have enough revolving credit. I've always stuck to the philosophy that if I didn't have the money in the bank then I didn't need it that bad so I never bothered with credit cards or any other credit for that matter. Now that I'm trying to get approved for a home loan apparently that's got to change. My lender gave me the advice of getting myself a couple of CC's, keeping the balances low and paying in full each month and to come back to see her in six to eight months. I took her advice and applied for a Cap1 platinum card and was approved for 300CL. I applied for a couple different cards including Walmart CC and a discover card but was denied (Bummer) but I still needed another source of revolving credit so I could stick to my lenders suggestion. So I applied for Credit through finger hut and was approved for a whopping $130 initial CL after paying off my initial purchase in six months, and not being allowed to pay off early I would then be granted a finger hut CC. My first question is does this strategy sound like it would work? I'd like to have my CS's up in the 680's by then and running my numbers through the credit calculator suggest that doing this should bring it up into the 690 range by then.
Also, in about 9 months my auto loan will be paid off (by the way, I plan on waiting a full year before returning to the mortgage lender) and I don't want all that good history to go to waste by it being paid in full rather than that good payment history still being reported. So my solution to this I figured would be to have another vehicle financed through my credit union in about six months since I need another family vehicle anyways and my CU told me that since I now have perfect credit with them that they would absolutely make me another loan and this time without a co-signer. My question is this, should I wait the six to eight months like the lender suggest (I'm sure she's trying to get my business ASAP) and not worry about getting the new car until after approved for a mortgage or would it be okay to go ahead and get the new car in six months and wait the full year for the mortgage? I worry that having the new car on my CR and it being a new account that it might negatively affect my score, and keep in mind that by this time my four year auto loan will be paid in full and will no longer be helping my revolving credit issue.
I hope this makes sense to all of you and any advice is greatly appreciated.

[750orbust]

Lol, I just thought of this scenario and wonder if its possible.
Would it be possible to have my credit union just add another vehicle onto my existing auto loan in six months and just increase my balance. By then I shouldn't owe but 400 to 600 more dollars on the current loan. I've never heard of anyone doing this but I wonder if explaining what I'm trying to do to my credit union if they would go along with this or not. Any suggestions?

[llecs]

Welcome!

You'd benefit from another CC but I'd personally would let the two new CCs report for a while before considering a 3rd. I wouldn't get another car loan. Get the house first. The new credit would ding and would also impact your DTI.

Your CU would just create a new loan vs. tacking on the balance.

[750orbust]

But what about the waiting period? Should I wait the six to eight months and re-apply for the mortgage while my current auto loan is still active or should I wait the year, let my auto loan be paid off but possibly have a higher score? I'm just worried that paying off my current auto loan will be detrimental to my score. On the other hand, lets say I pay off the auto loan and wait the full year, is it possible that my score could possibly go even higher and allow me to get a better IR?
I feel that I would be taking a big gamble by paying off the auto loan before applying for the mortgage because its my oldest positive account and its the best thing I've got going for me on my CR but I also want my new CC's to have as much time as possible to do as much credit rehab as possible. Can I have both?

[tooleman694]

Once those credit cards report, your score will jump thru the roof.

[750orbust]

I hope so but right now it's only one card. The way I understand the fingerhut system they want to see if you're actually going to make six on time monthly payments before they'll actually issue a "real" credit line. So I'm basically banking on just the cap1 card to raise my credit over the next six months. Will it make that much of a difference by then? The main thing I really want to know is what timeline you guys would recommend I wait. Will the six to eight months be in my best advantage. Or wait the full year and risk trying to get approved without the auto loan being active anymore. I feel like I've only got one shot at getting this right without having to wait an additional full year of throwing money away on rent.

[750orbust]

Sorry about this newbie question, but what is a DTI?

[dabrian]

---

@750orbust wrote:
Sorry about this newbie question, but what is a DTI?

---

Debt to income.  Don't get the auto loan.  If anything maybe get a secured or unsecured CC thru your Credit Union.

[MovingForward_2012]

Don't get the auto loan if you don't need a new car. I leased a new Acura 3 months before closing and it wasn't an issue but my qualifying score was above 700 when I was preapproved for a mortgage and I needed the new car because my car broke down at 106K miles with $2500 in repairs. It was cheaper and more financially stable for me to get a new car so I didn't have to worry about more repairs after buying the house.

An auto loan adds absolute debt meaning your monthly payment will always be the same amount every month unless you refi or pay it off. You are a much better candidate for another CC as with CCs, you can control your monthly payment by paying down your cards...this can be a DTI control knob. Paying down your cards also helps your credit score whereas paying down an auto loan faster, does nothing for your scores or DTI. Auto loans help by building good payment history but CCs do too. I charge all my cash expenses on credit cards and my checking account is a hub for paycheck deposits, and bills they can't be paid by credit card and normal monthly savings. I pay in full every month and earn rewards. I racked up $125 in cash back on one card since July and I just used $120 as a statement credit. I was approved for Chase Freedom in Jan and I earned $157 bucks in ONE month! Chase gave me $100 cash back out the gate as a signup bonus. I charged gas and drugstore purchases on it for 5% cash back this quarter. That $157 is available now as a check or statement credit or for use in the Ultimate Rewards mall. That is extra money to buy a friend a gift without making a dent in income.

If you only charge small things, you will build cash rewards very slowly. I charge about $2000 per month on credit card and never use my debit card. All my paycheck deposits add up to $2000 plus savings plus additional amount for other bills. The $2000 I charge on credit card is $2000 I would have spent on groceries, gas, etc. anyway so I am not adding any new debt. This is the way credit cards are meant to be used most of the time. Many folks are scared to do this as they are afraid they will go into debt. But if you do it just right, you earn money from the CCCs for just using their cards through rewards and pay no interest. I wouldn't have that extra $120 to offset my everyday spending this month if I only used debit card. $120 is quite a bit of extra money. And it was based upon 1% cash back on all my purchases since July. If you only charge $50 per month and PIF out of fear of losing control, then you won't gain much from using cash rewards cards.

Additionally, I use CCs for security. If my CC number gets stolen online, I still have the funds in my checking account. If my debit card number gets stolen, they are stealing my hard earned money which can be more of a hassle to get back. In the meantime, you may have to use savings just to pay the bills.

Back to the auto loan:
Getting a new auto loan now will lower the amount of home you can afford. If you make near six figures, it doesn't hurt DTI as much especially if there is very little debt without the auto loan. This happened to me. Even though my monthly payment went from $400 to $536 per month, I still was approved for up to $360K which was more house than I wanted or needed.

So apply for another card as it will give you open revolving history until you close it and it doesn't hurt your DTI nearly as much as they factor the min required monthly payment into your DTI which is usually only $25. This is $25 versus $300-$400 that a auto loan would cost you.