Hey guys, I heard that a monthly payment of several hundred can detract hundreds of grand from total mortgage allowed. Is it possible to avoid that by:
Paying off lease for remaining months. Would it immediately imrpove my DTI ratio? Would lenders still frown upon the existence of the lease contract and the prospect of auto spending after the lease end?
Lease buyout. For a $40k-$60k car, how much more is lease buyout gonna cost compared to purchasing up front?
Lease transfer.
Also would any of the above affect the credit score? Thanks!
If you’re trying to get a mortgage loan and your dti is cutting it close, then getting an auto loan isnt a good idea. Getting a new lease or transferring a lease will both negatively affect your credit score due to new credit inquiry and new acct which effectively lower your overall credit acct age. Paying off the lease for the remaining months will lower your dti but it will take 1-2 months for it to reflect on your credit report. The work around here is to time doing both at the same time so when they pull your credit for the mortgage loan, the auto loan hasnt shown up. Congrats on your new home and good luck!
Your mortgage lender will pull your credit again before funding so you have to time it perfectly. My advise is to leave your credit alone until escrow closes.
In my opinion, the dti limits most mortgage companies set are insanely high. If you’re having an issue with a lease pushing you over the edge, you’re shopping for more than you can afford.
Don’t overextend yourself financially. If DTI is even a question, you’re overextended. Unless you’re doing a second home mortgage with intent to sell the first one.
You can’t really stop your life because of car lease so if it’s a good time to apply for a home mortgage (like right now), you have to do it. What they do not want to see is that you are trying to “hack your credit report” (meaning, you are making drastic moves). A good mortgage guy should be able to navigate through the different programs available and what different banks will “allow”. Right now, the rates are low but they are for “easy” loans – meaning you want to be as ordinary as possible. Having a car lease is fairly ordinary and a lease is better than a financed car – with a lease, the payments are lower and your total liability is lower. With a financed car (purchase), you can pay the whole thing off if you have the funds but otherwise, your monthly and total liability will be most likely higher (might be counteracted by the equity you have in your car but probably not too much help)
Thanks for all your insights! Does anyone knows that: For a $40k-$60k car, if I do buyout to get out of lease early, how much more is it gonna cost compared to purchasing up front?
When I checked mine, car leases showed on my credit report with a balance that represented the sum total of the remaining payments. So, if there are 10 payments of $200 remaining, on your credit report it will show as a $2,000 balance.
It’s also very important to know that it depends on the leasing bank and how they handle this/how it affects your DTI.
I paid all the remaining payments on my Tundra lease through Ally. Ally effectively closed the account and the payment shows as 0 as far as DTI goes
I paid all of my remaining payments on my Jaguar lease through Chase. Chase will not do the same and it still shows as $517/month despite all remaining payments being made
I would have to do a lease return or pay the entire balance and buy the car for it to be gone.
All of the above was done by choice before I knew 100% I was buying a house, but when my mortgage broker did the credit pulls, I found this interesting.
I would have thought that this might have been changed since the last financial crash, but I was also surprised at how high the DTI limits are. Way too high for my comfort level…But then again, I also don’t take on leases more than ~0.5% per month of MSRP either, so I am generally a wimp!
Look for a mortgage you can “realistically” afford not what fits perfectly/snuggly in your budget.
Mortgage companies usually like 30-36% DTI so if you’re lease/loan is going to put you over that, you need to re-think the purchase. Do not over extend your self.
I was floored when one LO I was working with said I can have a DTI of up to 49% and he could usually squeak loans through with 51% or 52% in some cases, especially with high score/clean applications like mine
if my DTI was anywhere near 30%.