I second that comment.
Car leasing companies are more lenient than mortgage companies. I wouldn’t worry too much about “getting approved” by a leasing company if your score is high.
Also, when timing your application, realize that just because you turn in your car doesn’t mean your credit report updates right away. Usually takes about 1 month to update so if you turn in your car and the next day you apply for a mortgage, it will look to mortgage company as if you still had a car payment. You can then get a letter from leasing company verifying you don’t have a car anymore etc but that’s a headache.
If the mortgage company asks about your lack of car payment, you can always say “my wife and I share a care now”. Ive seen them ask when determining DTI ratio if you just returned a car, the always assume you will need another one and want to incorporate that into their decision but you can always say “we share a car” if your wife has a car.
I’m not sure if it was brought up yet, but you can always buy a cheap $2-3k car while you are working on your mortgage. You might break even when selling it or lose very little if you buy a car in demand like an old civic or something like that. That takes care of your car needs and DTI issues.
Buying a house is a huge long term expense/decision, you shouldn’t let a “car lease” stand in the way of getting what you want. Just my 2 cents.
its too hard to tell. you gotta look at both of ur income and how much house you getting. personally i would rather buy a 1k junk car and drive it until i get the house, its not worth it to risk it. mortgage company nowaday check really hard, i would suggest you not only NOT have a car payment but also payoff all your credit card and NOT use them for a few month before and during the finance stage until you lock in rate. also make sure you have your down pay in account sitting there for at least 3 month.
I had a new lease writhin a month or two of staring a mortgage process. The bank said it shouldn’t be an issue but also didn’t have any credit card debt. Went with a lower payment car as well
Should not affect your interest rate as long as you stay above bank’s excellent threshold.
Considering the maximum amount the bank will give you, you will roughly get 20k less for every $100 monthly lease payments.
Thanks a ton for all your responses. Excellent suggestions and insights.
I think the consensus is that I close my mortgage before getting into a car lease.
If that’s what is required, I guess that’s what I’ll do.
However, just to list my options, can anyone answer me about the <10 payments not affecting DTI factor? My wife and I have been discussing this and sharing a cAr will be super difficult considering our busy off-work schedules. I don’t want to buy a 2-3k cheap car because that’ll come out of our home down payment cash.
Here are some numbers, if it helps. We both will be on the loan application to get the max loan amount approved. Together we make about $180k per year(will increase to near 200K next year) and are looking at a 400k or less, home. Both our credits are in the mid 700s. Her credit card debt is a near 0 and mine is about 25k(25%) right now. Will be about less than half of it by mid 2018. We’re looking at FHA loans because of the 3% down payment since we didn’t plan on a mortgage and hence didn’t save for this…
I will look into a few mortgage calculators online, but I am not sure of how they calculate credit card debt in DTI. Do they consider the sum of minimum payments for each credit card to factor into the DTI?
I addressed a similar dilemma with our Hackr creator here: Mortgage Hackr?
I happen to work in mortgage and real estate for 3 years.
In simple terms: Mortgage first- not only will you have more borrowing power but rate increase has already been passed. If you are looking for a property in Southern California- I am more than happy to help you.
Not that I know of bud- some distant family members that live and go to school there. I manage a rental for them here in Orange County (3.8% cash flow 7.28% appreciation in 1 year). After you buy your first home- buy an investment one here or a vacation rental. I’m always within 10 miles from Disneyland.
25k at 25%? Holy crap monkeys! Pay that debt down and do a balance transfer to a 0% card. The 3% fee most charge is more than worth the money you’ll save. Considering how much you two make, a 400k house should be a cakewalk. However, you may not qualify for the best rate. Every little bit of better credit helps. I loaned my friend some money to pay down his credit card debt. His credit rating jumped something like 100 points over 3 months, and soon he was flooded with 0% offers.
You can lease a super-cheap car like a Cruze or Spark. GM practically gives those away. It’ll make much less of a credit dent than a nicer car.
You’re overthinking it. Based on what you’ve shared, it sounds like you don’t have anything to worry about. DTI for FHA is fairly generous at 50%, and your credit scores are plenty high. That means your total monthly debt payments shouldn’t exceed $7,500 based on $180,000 annual gross income - this includes the PITI (principal, interest, taxes, insurance) of your desired home, monthly car payments, minimum monthly credit card payments, and any other debt obligations that you have. Obtain a copy of your credit report - it will allow you to see what those payment amounts are. PITI for a $400k loan shouldn’t be any more than $2-3k depending on property taxes and insurance. So I’d say unless you have some significant debts that you didn’t mention, leasing a car before getting a mortgage really shouldn’t be a big deal.
With that combined income and current debt, you can go ahead and lease any car you want and still qualify with ease. (Nothing exotic with 3k payments of course)
PM if you have questions. I know a thing or two about mortgages.
I was in a similar situation a couple of years ago, lease due up and ready to buy property. DtI was a huge issue for me. Not because I’m living on the financial edge but I had a family vacation property in my name that drove my on paper DtI sky high.
I ended up really focusing on the monthly payment for my lease. I actually put money down - never since! - so the monthly was super low. The mortgage company was satisfied I had transportation accounted for, but at a minimal effect on DtI.
Based on your comments, I feel a little relieved that I am not overreaching on the mortgage plan.
@beardtw12 That 25k is spread across multiple cards because I did transfer some of the balance to other 0% api cards. I only have 2 of them on pretty high interest (16-18%) and now focusing on paying them off. I should pay them off in a couple months or by the end of the year.
Mistakes made, learnt the hard way, now trying to be a lot more conservative. A couple years ago, I’d have said I am looking for a 600K+ mortgage. But 2 years wiser now, trying to limit myself to what I need vs what I want( emphasis on ‘trying’).
you could also do a 1-pay lease on a cheap lease like the encore. Will show as $0 payment on your credit report. But i guess if you don’t have $2-3k to buy a used car you don’t have it for a 1-pay either.
Thank you. There are no other ‘debt’ obligations. But my bank statements do show about $500 per month that I pay to support my parents. Its been consistent for the last 3 or so years. Its not a ‘legal’ obligation that I have, but a moral one and I plan to continue that as long as required. That obviously factors into my DTI too, right?
Not that I dont have 2-3K. I can do it if push comes to shove. Based on all the suggestions above, I am not ruling that possibility out either. I’ll look for a Honda/Toyota that I can buy for about 3K, if that’s what it ends up coming to.
there’s a lot of talk about your income vs obligation and how you “have nothing to worry about” … all i can tell you is that you may or may not have something to worry about…but if you can avoid it, i would avoid it. You never know how underwriting ends up making decisions, if you don’t have the obligation, there’s nothing they can say. I’d try be on the safe side if it was me and not lease a new car and avoid all possible issues. It’s too important of a purchase to risk anything.
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