Advice Before Purchasing a Home

[mrskitty]

I'm currently renting my home at $1450 a month. Gross monthly is $5674. I'm considering buying it within the next two months depending if the seller accepts a good offer. I have one auto loan with a balance of $1162.97 and two credit cards with zero balance ($1150, $17K). My oldest account is my CC from 2005. I recently opened second CC two days ago. Should I pay off my auto loan now or make the final three monthly payments of $392.60? It will be my first mortgage loan if all goes well. I'd like to have diverse accounts. Or am I worrying too much?

[Anonymous]

If the auto loan is your only installment loan (as credit cards are revolving credit), then I would not pay it off before applying. Credit mix is part of your scoring.  You could actually lose points by closing it.  If DTI  is an issue, pay the auto loan down further, but do not completely pay it off, if its your only installment loan.  IMHO, of course.

[Anonymous]

You actually want ONE of your credit cards to report a very low balance at statement cut -- $5 will do it.  It will give you a free 15-20 point bump in most cases.  So do that next cycle -- let $5 report on ONE card, and after it reports, pay it off to avoid interest.  This really helps boost FICO points.

It's too late to bother now and screw up a mortgage app, but you actually want THREE credit cards open and reporting for maximum "free" FICO boost.  It's a bad idea to apply for new credit cards 6 months before a mortgage though so if your application goes in sooner than 6 months, don't add a third account.

Do NOT pay off your auto loan as having no open installment loans actually can hurt your FICO scores (usually the ones used for credit cards but it can ding one mortgage FICO score).  If you can, get your auto loan below 9% of the initial loan value but not $0.  This can boost your scores a bit more.

Go into poverty spend mode now and save up as much as possible towards down payment and moving costs and other stuff!  Once you apply and actually close on the loan and have the keys, open another credit card up.

[mrskitty]

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@Anonymous wrote:

If the auto loan is your only installment loan (as credit cards are revolving credit), then I would not pay it off before applying. Credit mix is part of your scoring.  You could actually lose points by closing it.  If DTI  is an issue, pay the auto loan down further, but do not completely pay it off, if its your only installment loan.  IMHO, of course.

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Yes, it's my only installment. 

[mrskitty]

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@Anonymous wrote:

You actually want ONE of your credit cards to report a very low balance at statement cut -- $5 will do it.  It will give you a free 15-20 point bump in most cases.  So do that next cycle -- let $5 report on ONE card, and after it reports, pay it off to avoid interest.  This really helps boost FICO points.

It's too late to bother now and screw up a mortgage app, but you actually want THREE credit cards open and reporting for maximum "free" FICO boost.  It's a bad idea to apply for new credit cards 6 months before a mortgage though so if your application goes in sooner than 6 months, don't add a third account.

Do NOT pay off your auto loan as having no open installment loans actually can hurt your FICO scores (usually the ones used for credit cards but it can ding one mortgage FICO score).  If you can, get your auto loan below 9% of the initial loan value but not $0.  This can boost your scores a bit more.

Go into poverty spend mode now and save up as much as possible towards down payment and moving costs and other stuff!  Once you apply and actually close on the loan and have the keys, open another credit card up.

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I got approved for CC before I found this forum and before the owner got back to my property manager with an answer about considering selling it. =/ With the auto loan, it's a 20K fixed-rate loan. So, 9% of 20K is $1,800. Is that what you're saying? If so, then my balance is less than that. Also, I'm thinking about doing a VA Loan. 

I will I'll do the $5 balance. Thank you for input. 

[Anonymous]

Yep if you're under 9% left on that autoloan, you're getting maximum FICO points -- and it does help if your middle mortgage score is EQ.

The $5 trick should help boost your scores some more.  I got a 16, 16, 20 point boost this month going from $0 to $50 on my highest credit limit card.

[mrskitty]

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@Anonymous wrote:

Yep if you're under 9% left on that autoloan, you're getting maximum FICO points -- and it does help if your middle mortgage score is EQ.

The $5 trick should help boost your scores some more.  I got a 16, 16, 20 point boost this month going from $0 to $50 on my highest credit limit card.

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So, is it best to put $5 on the one with the highest CL? It's the one that I just applied for. I guess I need to find out when they report. My EQ score is the lowest due to no mortgage info. I had three inquiries since August because of applying for rent and utilities. 

[Anonymous]

The actual rule is to put less than 8.9% of the credit limit on one card, but not $0.  I like changing between $5 and $50 monthly on my $2500 limit card so that I get credit monitoring alerts automatically each month when it reports so I know I can pay it down to $0 safely!

I also only let $5/$50 report on a bank card instead of a store card.  I doubt it matters, but I prefer to do it that way.

[mrskitty]

Ok, thank you.