You did WHAT!? (Part 3)
I’m wrapping up my “What not to do!” tips with buying and selling cars.
- Don’t Buy A New Car
- Unfortunately, I’ve seen this happen on many occasions. Feeling better about the economy and your financial health overall may have been what led you to thinking about buying a home. So, of course one of the more common purchases in such times is a new car. However, by doing so, you would be increasing your “debt to earnings” ratio – in other words, the amount of your monthly debt obligations compared to your pre-tax earnings. While you may very well be able to afford both a new car payment and a new home mortgage payment, you may actually fall below “debt to earnings” credit standards as a result of the car purchase. Definitely talk to me about this first so I can analyze your personal situation.
- Don’t Payoff A Car Loan
- Okay… now this may really sound confusing! Sure, by paying off a loan, you are reducing your overall debt obligations. However, it’s simply a fact that a good portion of your credit score is determined by your debt repayment history – including your CURRENT outstanding debts. Unless you are overextended, such loans often help your credit score. As a result, if you payoff a car loan, your credit score may actually DROP a few points!. If your credit scores are already low enough this may have just caused your scores to fall below standard underwriting guidelines, making your loan more difficult to approve. Taking that a step further… you may already be pre-qualified, decide to payoff a car loan or two during the loan underwriting (thinking you’re doing the “right thing”), and then be thrown a curve-ball when the lender re-check’s your credit score a few days before closing.
When it comes to mortgage lending, consistency is key. Prior to, and during the home loan underwriting process, unless I specifically advise you, do not make any major changes in how you handle your finances. You may think you’re helping, but you could be making hurting your chances of getting your loan fully approved.
Any questions? Give me a call or email me. I look forward to answering any questions you may have!