preparing credit for mortgage loan

[Anonymous]

I am looking to buy a house this year and need some advice on improving my credit. Here is my situation:

trans, equifax, and Fico scores in the low 700s.

2 student loans equaling about 5,000 dollars, but low interest rate (2.8)

Just purchased car in August - been overpaying the last couple months 18k remaining on a 22k loan

i use less than 10% of credit card limit and pay in full every month

average age of credit history not very good (about 4 years) -last new account was in September

the 2 student loans both have 2 late payments (from 2011)

Here is the question: I have extra income - where would it be best to put it to set me up for a mortgage?

1. Should I save? Right now I only have about 9k in savings, so i wanted to save some more for down payment/ house repairs.

2. Should I pay off student loans? Would it help get rid of the late payments since the account would be closed? I planned on paying minimum until paid off because the interest is so low.

3. Should I pay down the debt on my car? Would it help if i got my car out from "underwater?"

thanks!!

[Revelate]

---

@Anonymous wrote:

I am looking to buy a house this year and need some advice on improving my credit. Here is my situation:

trans, equifax, and Fico scores in the low 700s.

2 student loans equaling about 5,000 dollars, but low interest rate (2.8)

Just purchased car in August - been overpaying the last couple months 18k remaining on a 22k loan

i use less than 10% of credit card limit and pay in full every month

average age of credit history not very good (about 4 years) -last new account was in September

the 2 student loans both have 2 late payments (from 2011)

Here is the question: I have extra income - where would it be best to put it to set me up for a mortgage?

1. Should I save? Right now I only have about 9k in savings, so i wanted to save some more for down payment/ house repairs.

2. Should I pay off student loans? Would it help get rid of the late payments since the account would be closed? I planned on paying minimum until paid off because the interest is so low.

3. Should I pay down the debt on my car? Would it help if i got my car out from "underwater?"

thanks!!

---

Welcome to the forums!

1) Yes if you're buying this year in my opinion.  Longer time periods there's more flexiblity and there it makes more sense to hammer your debt to be able to save more later.

2) Won't help from a score perspective, closing the SL's doesn't get rid of the lates (you may be able to Goodwill those off, check the Rebuilding forum) though it would reduce your Debt-to-Income (DTI) calculation for mortgage qualifilcation.  Your plan of paying just the minimum if it's your lowest APR is financially smart.

3) Similar for auto loan, amount underwater doesn't matter, monthly payment does for mortgage underwriting specifically for the aforementioned DTI hurdle

[frugalQ]

Be careful with paying off your student loan. My DH paid off his truck and lost ~15 points on EX.

If having having the monthly student loan payment doesn't take you over the DTI limit, I recommend continuing to pay the monthly amount.

[Anonymous]

---

@Anonymous wrote:

I am looking to buy a house this year and need some advice on improving my credit. Here is my situation:

trans, equifax, and Fico scores in the low 700s.

2 student loans equaling about 5,000 dollars, but low interest rate (2.8)

Just purchased car in August - been overpaying the last couple months 18k remaining on a 22k loan

i use less than 10% of credit card limit and pay in full every month

average age of credit history not very good (about 4 years) -last new account was in September

the 2 student loans both have 2 late payments (from 2011)

Here is the question: I have extra income - where would it be best to put it to set me up for a mortgage?

1. Should I save? Right now I only have about 9k in savings, so i wanted to save some more for down payment/ house repairs.

2. Should I pay off student loans? Would it help get rid of the late payments since the account would be closed? I planned on paying minimum until paid off because the interest is so low.

3. Should I pay down the debt on my car? Would it help if i got my car out from "underwater?"

thanks!!

---

1) Depends on how much you earn.  As a general rule, yes, you should save more. More money for downpayment = lower rates. Additionally, the savings will give you the freedom to pay off other expenses.

2) Depends on what you would do with the money otherwise. As a general rule, I like paying the minimum, because your interest rates are so low, but only if you're investing the money in something that earns more than 3% (such as the stock market). If it is just going to sit in a checking account, you might as well use it to pay off the loans. BIG EXCEPTION is right now, it's probably better to have the liquidity, rather than tie the money to the loans.

3) Also depends on income. As a general rule, no more than 28% of your income should go to your mortgage payment + taxes + insurance. Additionally, no more than 36% should go to your total debt obligations, including the car and student loans, as well as any credit card debt you may have (note that if you PIF every month, you can probably ignore the CC debt). This means that no more than 8% of your income should go towards servicing the debt on credit cards, student loans, and your car. For someone making $45k per year, this equates to $300 for those payments. Any more than that, (assuming you make $45k per year), and you have to reduce the amount of house you're looking for.

[DallasLoanGuy]

---

@Anonymous wrote:

I am looking to buy a house this year and need some advice on improving my credit. Here is my situation:

trans, equifax, and Fico scores in the low 700s.

2 student loans equaling about 5,000 dollars, but low interest rate (2.8)

Just purchased car in August - been overpaying the last couple months 18k remaining on a 22k loan

i use less than 10% of credit card limit and pay in full every month

average age of credit history not very good (about 4 years) -last new account was in September

the 2 student loans both have 2 late payments (from 2011)  not an issue

Here is the question: I have extra income - where would it be best to put it to set me up for a mortgage?

1. Should I save? cash is king Right now I only have about 9k in savings, so i wanted to save some more for down payment/ house repairs.

2. Should I pay off student loans? i wouldnt. unless payments are affecting approval.... you can always do that later if the loan officer advises. Would it help get rid of the late payments since the account would be closed? I planned on paying minimum until paid off because the interest is so low.

3. Should I pay down the debt on my car? i would rather see savings Would it help if i got my car out from "underwater?" we dont care about that

thanks!!

---

save cash. save cash. save cash

[Anonymous]

---

@DallasLoanGuy wrote:

---

@Anonymous wrote:

I am looking to buy a house this year and need some advice on improving my credit. Here is my situation:

trans, equifax, and Fico scores in the low 700s.

2 student loans equaling about 5,000 dollars, but low interest rate (2.8)

Just purchased car in August - been overpaying the last couple months 18k remaining on a 22k loan

i use less than 10% of credit card limit and pay in full every month

average age of credit history not very good (about 4 years) -last new account was in September

the 2 student loans both have 2 late payments (from 2011)  not an issue

Here is the question: I have extra income - where would it be best to put it to set me up for a mortgage?

1. Should I save? cash is king Right now I only have about 9k in savings, so i wanted to save some more for down payment/ house repairs.

2. Should I pay off student loans? i wouldnt. unless payments are affecting approval.... you can always do that later if the loan officer advises. Would it help get rid of the late payments since the account would be closed? I planned on paying minimum until paid off because the interest is so low.

3. Should I pay down the debt on my car? i would rather see savings Would it help if i got my car out from "underwater?" we dont care about that

thanks!!

---

save cash. save cash. save cash

---

I agree 100%