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Debt Consolidation Loan to help DTI?

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Debt Consolidation Loan to help DTI?

Husband and I are looking to buy a home this summer. We live in Texas so Unfortunately my debt is a burden. Currently our FICO scores are in the 700s with our Mortgage scores also in the low to mid 700s. He makes 44k a year. I make 22k. Our current rent is $1,100 and our car note is $275. We've been approved for a loan of $19,000 with a monthly payment of about $390. Below is our current debt.

Balance                                                        Monthly Payment

Discover $14,471                                        $290.00

Wells Fargo $3090                                      $31.00

Ebay MC  $2395                                          $60.00

Paypal $2026                                               $60.00

B of A $2575.00   (recent balance transfer. Unsure of monthly payment)

B of A $4537.66                                           $162.00

Us Bank $1346                                             $52.00

 

The Us Bank card is my husbands only card with a balance. Thinking of Paying off the two largest and then lowering the balances on the others. Is an installment loan like a debt consolidation loan viewed differently as credit card debt? Would it hurt our credit to apply for the loan now? We plan to start shopping for mortgages in April or May. Any advice would be greatly appreciated!! 

5 REPLIES 5
Valued Contributor

Re: Debt Consolidation Loan to help DTI?

Hi Seki,

 

Your debts are only a burden if you're going to be on the mortgage or if your husband is applying to an FHA or USDA mortgage.

So what type of mortgage do plan on applying for?

Based on the information you've provided, the best case scenario is you pay off the Discover Card at $290 per month & the Bank Of America account at $162 per month for a net savings of $62 per month. That extra $62 per month roughly equals $12,500 on a mortgage.

Does that make sense?

Who has the car loan & the majority of the credit card debt?

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 2 of 6
Established Member

Re: Debt Consolidation Loan to help DTI?

We were hoping for an FHA or USDA loan but a Conventional is fine if we can get one. Most of the credit card debt is mine. Since we live in Texas, I thought my debt was his debt. Is that not the case with a Conventional mortgage? The car is under both our names and has $9500 left. My husband only has a US Bank card with a balance of $1300.
Message 3 of 6
Valued Contributor

Re: Debt Consolidation Loan to help DTI?


@Seki wrote:
We were hoping for an FHA or USDA loan but a Conventional is fine if we can get one. Most of the credit card debt is mine. Since we live in Texas, I thought my debt was his debt. Is that not the case with a Conventional mortgage? The car is under both our names and has $9500 left. My husband only has a US Bank card with a balance of $1300.

Hi Seki,

The only time you have to count a non purchasing spouse's debts in a community property state is if you're doing an FHA or USDA mortgage.

Where are you looking to buy?

The loan option will likely be determined based on your debt to income ratios based on the price point you're looking in.

FHA is going to give you the most flexibility on your debt ratios (up to 56.9%) followed by conventional (up to 50%) and then USDA.

There are a couple of conventional programs that only require 3% down but they have county income limits which is why I asked where you're looking to buy.

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
Message 4 of 6
Established Member

Re: Debt Consolidation Loan to help DTI?

We're looking to stay outside of Houston proper. I would like to remain in Southeast Harris County or Brazoria County. But my husband prefers North of Houston. Its really going to come down to finding the right home at the right price. We're also interested in some of the Down payment and closing cost assistance programs that are available and I know those also sometimes depend on city or county. Right now I'm not looking at homes that cost more than $200k. 180k seems more realistic but $160k would be ideal. But since I have no clue what we'd be approved for, everything is wishful thinking at this point.
Message 5 of 6
Regular Contributor

Re: Debt Consolidation Loan to help DTI?

If you did in fact move forward with consolidating please to not close out any of your credit cards. It appears to me that your debt ratio will be okay regardless of consolidating or not. The downside to many of those down payment assistance (DPA) programs is that they require you to have a higher interest rate. I just quoted a buyer a 30 year term FHA loan with a fixed rate of 3.95% with no points. They asked me "what if I decide to go with the down payment assistance program?" The DPA program require(mandatory) lenders to give the buyer their specified rate off of their rate sheet. It was a whopping 5.25% Although the DPA did help them with 3.5% down, it also caused their payment to increase an extra $200 per month.

Please check their rates and their income guidelines. Harris county (DPA) only allows $59,900 total household income for a family of 4. Looks like you'd need a family of 6 to meet their strict guidelines. They also have stricter income debt ratio. Sometimes you're better off not using DPAs if you can muster up the down payment.

I notified my buyer that if they chose not to go w DPA and went with the lower rate and payment which saved them $200 per month - if they paid that extra $200 toward principal they would have the home paid off in 22 and a half years. This would save them over $120,000 worth of payments. These numbers/saving become crazy big when broken down. Just some food for thought.
Message 6 of 6
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