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How would this car payment be calculated for DTI on a mortgage?

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Established Contributor

How would this car payment be calculated for DTI on a mortgage?

Looking to apply for a mortgage in 6-12 months and I'm curious about this auto loan. Basically wondering if the monthly payment would be included in the DTI and if I should pay it off before I apply for the mortgage or after?

Have a car loan from January 2017. Started at around $9000 and has been sitting at $12-13 for over a year now. It incurs around $.01 in interest per day which I don't mind paying to keep it open on my credit reports to increase my scores since it's my only installment loan. When the statement comes each month my payment due is $0.00 even though the monthly payment was supposed to be $176. After speaking with their customer service department, my next payment isn't due until May 2020.

I could obviously pay this off at any time and only keep it open for scoring purposes. What would you do with this loan when applying for a mortgage? Keep it to help score? Or dump it incase they'll use my $176 minimum monthly payment for DTI calculations?
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Regular Contributor

Re: How would this car payment be calculated for DTI on a mortgage?

Keep it because; 1) Closing an installment—even one so recently opened—would likely drop your scores in the short run; 2) The payment on your credit report would be zero, it reports an updated payment; and 3) if you only owe $12 it only makes sense to pay it if your broker tellls you to. Also, FYI, it will report as paid in full for 7 years anyway...
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Valued Contributor

Re: How would this car payment be calculated for DTI on a mortgage?

I completely agree with the person above paying it off will decrease points and I wouldn't recommend it at all!    You also want to keep your AAoA's higher and if you remove it that will affect that also.  Smiley Happy










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Community Leader
Valued Contributor

Re: How would this car payment be calculated for DTI on a mortgage?

I agree, keep it open. 

If you need the extra $176 to qualify for a mortgage, a lender can set it up so that you have to pay the account off at closing. This way you'll have your mortgage rate locked in & your mortgage loan closed before there's any impact on your credit scores from closing that account.

 

VA Mortgage Expert. Mortgage Banker lending in All 50 States.
VA, FHA, USDA. Jumbo, Conventional.
CAIVRS Expert.
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