Applying for a Mortgage and outstanding car loans?
Heather C
When you apply for a mortgage do lenders look at your total outstanding balance on a car loan or your monthly payment for the loan? I ask because we have a $465 payment and are wondering if we should refinance or trade the car in for something else in order to bring down the monthly payment as we are getting ready to apply for a mortgage.
When you apply for a mortgage do lenders look at your total outstanding balance on a car loan or your monthly payment for the loan? I ask because we have a $465 payment and are wondering if we should refinance or trade the car in for something else in order to bring down the monthly payment as we are getting ready to apply for a mortgage.
December 27th, 2007 at 3:12 am
We look at the monthly payment. If it is not a lease, we will not count it if there are less than 10 payments left.
December 30th, 2007 at 5:13 am
If you refinance or trade in the car and get another loan, it will look bad on your credit report when you go looking for a mortgage. Applying for new credit right before a mortgage makes it seem like you are running up a lot of debt and could make them worry that you will not pay off the mortgage. If you can afford that car payment plus a mortgage, leave it alone. If you can’t, you might have to wait a while before you get the car under control. I believe that lenders only want you to have 30% of your income going towards paying off debt.
January 1st, 2008 at 1:25 pm
they will look at the monthly payment to calculate your DTI (debt to income) you need to be under 50% example: you make $4,000 a month your total bills going out each month must be less than $2,000, im sure when the time comes and you apply your loan officer will help you with this and give you some options if your dti is too high, good luck to you
January 4th, 2008 at 7:53 pm
I believe the bank looks at your total debt-to-income ratio, not individual montly payments. I read in a book that if your car will be paid off within a year or so, the bank will not count that debt in the ratio.
January 7th, 2008 at 9:59 am
Good Question. I am in the mortgage business. Most major lenders are only interested in the monthly payment amount to determine your “debt-to-income” (DTI) ratio. Basically, for most loan programs you need to be below 50% although some allow you to go up to 65%. To determine your DTI you just add up your total monthly debts that show up on your credit report (don’t include cable bill, utilities, etc…) plus what you expect your new mortgage payment to be, then you divide that number by your total gross income per month.
For example, if you make $6000 per month and your debts add up to $2500, your DTI is 42%.
You may only need to trade in or sell the car if your DTI is over 65%.
Hope that helps.