@Anonymous wrote:DH and I are planning on a mortgage Spring/Summer 2017. We're working on his credit since it's the lower scores between us. He has 3 open installment loans and 1 (definitely) or 2 (possibly) will be paid off.
Auto Loan 1. Balance currently owed = __722__. Original amount of loan = __11,996___. (Will definitely be paid off)
Auto Loan 2. Balance currently owed = __6,346__. Original amount of loan = __14,429__. (Would like to pay off for DTI)
Auto Loan 3. Balance currently owed = ___25,860__. Original amount of loan = __27,390____.
I can provide any additional information requested. Really looking for any strategies that will keep his score the same or increase in regards to his installment loans. Thoughts/suggestions welcome.
When you pay Loan 1 down to zero that will cause your FICO 8 to take a hit, because your open installment loan utilization percentage will shoot up.
But I have been told, by folks more knowledgeable than I, that 2 of the 3 primary mortgage scores do not care about open installment loan utilization percentage.
According to Revelate, EQ & TU mortgage scores are unaffected by changes in the utilization percentage on installment loans, and only EX is affected by it.
Since the prevailing practice, I am told, among mortgage lenders is to pull all 3 bureaus and take the middle score, the change in installment loan utilization should not affect your application.
I assume that paying off Loan 1 will greatly enhance your husband's debt-to-income ratio. It's my understanding that this would not show up in the credit score, but would make a difference to the lender.
@Anonymous wrote:Thank you both for the insight. I had a feeling current balance vs. original balance factored in somehow but wasn't sure where, and now it makes sense. His mortgage scores are currently higher than his FICO 8s, but Experian is the highest of his mortgage scores. It sounds like paying off both loans will definitely drop his score.
What are his scores?
Scores determine your mortgage rate (well that and LTV)
DTI and down payment determine how much house you can get.
If you can get the house you want on your combined income (I assume you've run DTI calcs already but 43% is a pretty good number these days) then I wouldn't touch the loans... if you can't, and you need to make room on the DTI calculation, then you pay the loans; however, holding cash is a good thing for a mortgage so unless you have to get the DTI room, I'd sit on it personally with the short timeline between now and application.
I can confirm that EX Risk Model v2 is the only one on the mortgage trifecta that cares, but also you may not see that much of a drop and if your scores are high enough already it won't matter much. You're not in the uber-awesome installment bracket yet so it's not a OMG THE SKY IS FALLING penalty at least if you have to pay off the loans.
Edit: Oh I forgot something important - when you figure out your lender ask the question on how they count almost paid off installment loans; some still discount loans that are due to be paid off in like 10 months, so if you pay them down enough but not off, you get the best of both worlds. Something to consider and it further recommends the strategy of just wait a bit before doing anything.
@Anonymous wrote:
More great insight, thank you.
His scores are:
FICO 2 - 649
FICO 4 - 640
FICO 5 - 627
I will be sure to ask the lender how they treat soon to be paid off accounts. We have been using the 29/41 model for USDA loans because we are looking to buy rural and no down payment option. We have cash in hand, although I don't think enough to cover down payment, closing costs, and misc expenses for the price range we're looking at (170k).
With his scores on the low side, I'd like to increase them as much as we can for a better rate. I should mention there is room for improvement outside the installment loans. Since everyone seems very knowledgeable, maybe I can expand my inquiry a little bit. He only has one credit card with a low limit and high utilization (77%). Without a doubt, this is getting paid down ASAP which I hope will help his score. Is it wise to pay it fully or leave a small balance? Any additional help greatly appreciated.
OH haha, pay that credit card down to like $10 bucks like ASAP. 77% aggregate is huge, if you were further out I'd suggest you open a couple more credit cards but with only 3 months to go, pay that down, and see where that brings you. USDA is a good program if you're in a qualifying area and I don't think it's that score sensitive but prettying up revolving utilization is a quick FICO win which is likely way more than any loss you'd have paying off installment loans.
Go do that, see where it takes hubby's scores; then hold for a bit, and if you have to clear DTI because your LO said so, you do so. Smells like victory frankly.
I gave a heads up to the current moderators on the duplicate account, you will probably need to contact myFICO customer support though as most we could do when I was a moderator was just ban one of the two accounts... pick which one you want to be using going forward though would be my recommendation and stick with that.
Hi there OP,
We have been informed that you accidentally created 2 accounts please let me know which one you wish to keep and I will suspend the other as per the TOS users may only have one account.
