Payoff loans or not....

[MWFICO]

I've got to make a decision soon and looking for a little advice.  Currently, we are building a house and will be eligible for VA loan but will look at all the loan options.  Currently, my mortgage scores are 775, 778,791 and my revolver utilization is at 15%  but will be AZEO, in a month and I feel that will push the middle number over 780.

Here's my dilema, I currently have 3 loans, Auto, and two personal loans.  I'm getting a large bonus next month and was considering paying off the two personal loans but I'm wondering if paying these hurt my mortgage scores?  The auto loan is just over a year old, and the others are two years old.   The other option is to pay the two personals down to less than 6 months of payments left?

Just looking for a little advice to ensure that mortgage score is over 780, which may open up more loan options for us.  Thanks in advance.

[ShanetheMortgageMan]

If you're exempt from the VA funding fee, a VA loan is almost always the best option as it has lower rates and no monthly mortgage insurance. If you're not exempt, then it’s worth comparing against a conventional loan by seeing what rate you'd get if you used the same amount as the VA funding fee to pay points. That way you’re comparing them on equal footing.

Your current credit scores are already strong.  A 780+ score only makes a difference for certain pricing tiers on conventional loans. VA loans don’t price any better at 780 than they do at 740 or 760, so it’s not something to stress about if you’re going that route.

If you're thinking about paying down or paying off the personal loans to exclude them from your debt-to-income ratio, know that you can wait.  If the loan is determined to be a DTI issue during underwriting, you can choose to pay it off at closing which avoids any impact to your credit score during the mortgage process.  

[ForwardLooking]

If it were me, I would just pay off the personal loans if they are above 6 or 7% reguardless.  Shane probably has the right idea of timing it and making it a closing condition / item if DTI is a concern.  At the end of the day, it is becoming a buyers market, and if you really want to ensure a low interest rate, have the seller buy your points down as part of the deal.  I am closing on Tuesday and had the seller pay about $4,800 to ensure I was locked into a 4% fixed rate for the life of the loan, and my middle score is 719.

[MWFICO]

Thanks for the replies and to expand we're not going to be exempt for the VA fee and why I want to ensure we get to that 780 score for conventional options.  DTI is not going to be an issue Shane more of I can pay off now but again want to ensure I stay above 780. As far as builder buying points, this is a cost plus custom build.

[FicoMike0]

If you pay revolvers below 9%, that should help scores. And/or, if you prepay personal and auto loans to less than 9% agg. That should help as well. In the latter case, don't pif any of the loans, rather reduce utiluzation.

[ForwardLooking]

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@MWFICO wrote:

Thanks for the replies and to expand we're not going to be exempt for the VA fee and why I want to ensure we get to that 780 score for conventional options.  DTI is not going to be an issue Shane more of I can pay off now but again want to ensure I stay above 780. As far as builder buying points, this is a cost plus custom build.

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The seller was a builder in my case and I still managed to get them to buy down points.  They started getting scared when the appraisial came in well under (because the market is falling here) and they had to start adjusting things to ensure the sell because I had every right to walk away and get my ernest money back at that point.  But that is my experiance based on where I am buying, yours may be different.  I wish you the best in your house journey and hopefully you get the house of your dreams!

[Patient957]

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@MWFICO wrote:

  The other option is to pay the two personals down to less than 6 months of payments left?

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If you just want to maximize score, I think this would probably be the best option, for Fico 8.  The idea is to minimize aggregate B/L of your open installment loans.

However for the mortgage Ficos, I'm not sure.  This is a question for @Thomas_Thumb .

What are the original loan amounts and current balances for each of the 3 loans?

[Thomas_Thumb]

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@MWFICO wrote:

I've got to make a decision soon and looking for a little advice.  Currently, we are building a house and will be eligible for VA loan but will look at all the loan options.  Currently, my mortgage scores are 775, 778,791 and my revolver utilization is at 15%  but will be AZEO, in a month and I feel that will push the middle number over 780.

Here's my dilema, I currently have 3 loans, Auto, and two personal loans.  I'm getting a large bonus next month and was considering paying off the two personal loans but I'm wondering if paying these hurt my mortgage scores?  The auto loan is just over a year old, and the others are two years old.   The other option is to pay the two personals down to less than 6 months of payments left?

Just looking for a little advice to ensure that mortgage score is over 780, which may open up more loan options for us.  Thanks in advance.

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Dropping revolving accounts reporting balances to AZE1 should certainly boost your mortgage scores. The mortgage Ficos, particularly EQ, can penalize significantly for too mant cards with balances.Just make sure the credit card reporting the balance is an open loop revolver - not an AMEX charge card or a closed loop

store card. 

AZE1 coupled with dropping aggregate revolving utilization to under 5% is optimal. Given aggregate is currently 15%, I'd expect AZE1 with aggregate under 5% should boost scores atleast 10 points.

Paying off the small personal loans should not impact score. Fico does penalize for no open installment loans on file - but the auto loan is sufficient. An aggregate installment B/L under 9% can boost score but, paying down the personal loans to 6 months balance remaining appears unlikely to reduce aggregate to 9%.

[ShanetheMortgageMan]

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@MWFICO wrote:

Thanks for the replies and to expand we're not going to be exempt for the VA fee and why I want to ensure we get to that 780 score for conventional options.  DTI is not going to be an issue Shane more of I can pay off now but again want to ensure I stay above 780. As far as builder buying points, this is a cost plus custom build.

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Thanks for the clarification

Below is the VA funding fee chart.  

Rates for Veterans, active-duty service members, and National Guard and Reserve members

  

If you're putting at least 5% down, the VA funding fee would be 1.5% of the loan amount on a first-time use (1.25% if you go 10% down). Conventional rates also improve at 5% down, and PMI gets cheaper as well when you hit the 5%, 10% and 15% down markers.

Even so, VA rates tend to come in lower than conventional, especially once you're into the 700s credit-wise. Based on Friday's rates, a VA loan with 1.25–1.5% in fees is still about 0.25% lower in rate than a conventional loan with the same amount paid in points.   Definitely worth getting quotes on both to see what your actual numbers would look like.

[MWFICO]

Thanks for the responses.  Shane can you buy down interest rates with VA loans?