topic Re: Paying off car - DTI vs Score Impact in Mortgage Loans

Paying off car - DTI vs Score Impact

itsy_bitsy_spyder — Wed, 17 Jun 2020 11:21:57 GMT

Hello, community!

I'm in the process of raising my scores in the hopes of refinancing my mortgage to 15 years. I've learned that for the most part, closing accounts right before applying for refinancing, that is, paying off cars, for example, will ding my score. I did see an example of this - I closed a store card that I was not using after paying it off. My Experian mortgage score decreased by 11 points, thought FICO8 did not change. However, my mortgage officer is of the opinion that DTI plays a bigger hand in a 15-year mortgage than a few points on the credit score.

My question is this: I'm still trying to get to AZEO - that will not change. Paying off my car will give me a DTI savings of $400. I'm actually close to the 45% limit, so bringing it down will definitely help with the ratios. What are your collective opinions about whether it's worth it? Just to put things in perspective my middle score is a low 700. I have 2 more cards to work on, so if that gets me some points, I might still be around 700ish, as opposed to 720ish.

Re: Paying off car - DTI vs Score Impact

NC_Mtg_Loaner — Wed, 17 Jun 2020 13:17:10 GMT

ultimately, you want to be certain you are comfortable with whatever payment levels you 'settle in on' as it's expensive to change.

As long as you are ok with the 15 year payment--great! the score shouldn't be an issue for you with 700+ range when you pay off that auto loan but if you decide not to pay the auto loan off, check out the #s on a 20 year loan----it's got a lot of benefits itself over the 15 and the 30 and it might be exactly what the Dr. ordered.

Re: Paying off car - DTI vs Score Impact

itsy_bitsy_spyder — Wed, 17 Jun 2020 15:30:21 GMT

Thanks @NC_Mtg_Loaner

As far as planning for the finances goes, I think I'd be comfortable with what I think the monthly payment estimate will be. DW does have a full-time job, which does help with flexibility.

From a DTI perspective, how close can I get to 45% and still ensure approval? Essentially paying off car will get it down to 41%, with the car it will be around 44.85%? I just want to make sure I'm giving myself the best odds - credit-score wise, and DTI wise. From my understanding 680+ will all get almost the same rate for a 15-year mortgage, is that right?

I also want to show cash reserves, with stock for about 6 months of the debt payment. Do you think that's enough?

Thanks so much!