My current car lease ends in April 2018. I cannot get by without a car after the lease ends and obviously am looking for another lease. But I also will be starting a Mortgage process in 2018 or wait till 2019 if I have to…
So I am trying to do my research now and figure out the best course of action to have the least amount of impact on either.
I know that car payments affect the DTI during the mortgage application process, but I have no choice. I am looking for some advice/insights/guidance here about what to go with first. Here are my options,
Start my Mortgage in April, close it, buy the home and then look at Car leases. But I am unsure of how that’ll affect my car lease approval chances. I am at about 740 FICO scores right now, but how bad will a mortgage app hit my score?
Start a car lease first and then start my mortgage, but get hit on the DTI. Does it matter if I lease a car or purchase? Is it my monthly payment that affects the Mortgage app or the total amount of car loan also matter? Meaning, if I purchase a 40K car, is that worse than leasing a 40K car because only a part of that 40K goes into my credit report as the total loan amount?
I can wait till 2019 for my mortgage and in the meanwhile get a 2 year car lease. How will that help? I hear that mortgage lenders do not consider car payments(or any debt obligations) if there are less than 10 payments left to fulfill the loan contract. So I am thinking, I can lease a car for 2 years, start my mortgage when there are 10 or less payments left, close my mortgage. That will also give me about 10 months to work my credit score back up to be able to lease my next car.
An option I havent thought off if someone can open my eyes to.
Depends on if your current payment on the car will be more or less than the next cars payment. The hit to Credit Score is not a big one and usually will disappear in a few months. Banks also realize that if you have no car that you likely will be getting one shortly after the mortgage and will/can ask for future payment for Debit to Income ratio purposes. Also depends on how quickly you are to find a house or have you found one already, also how much you make and how much debt you have with everything else.
What matters is the monthly payment. I can assure you that fellow LH’ers will help you land a solid deal when your current lease ends. For what it’s worth, your current lease payment will be factored into your mortgage qualifications.
My current lease ends in April. What if I apply for Mortgage after the lease ends? There wont be anything to affect the DTI, right?
I’ll be applying for the mortgage together with my wife and she has her own car. Luckily I work from home full time and ‘technically’ dont need a car (atleast for commuting to work). We are currently even trying to figure out if we need a second car but I do commute a lot after work hours, so in a bit of a dilemma.
So is this a fair expectation that I finish my car lease, no more debt obligation except a couple credit cards… apply for mortgage with only one car payment(wife’s) affecting the DTI… take that time to figure out if I need a car and then get a new lease/purchase, say a month after mortgage, if so we decide?
Also, any thoughts on the <10 payments not affecting the DTI? Is that true and a universal rule or specific to certain lenders?
it really depend on your income. when bank calculate your piti, they look at everything with a monthly payment, so a lease would definitely impact the amount you can barrow. i have a few rental properties and what i did was using my wife only on the mortgage sine she makes more, and i take all the car payment. eventho the houses are in both of our name, the bank dont care about my expanse as long as im not the one on the loan. hope that help
We thought about it. I make more money than my wife and her car payments are until 2020.
Moreover with just one person on the loan, wont that limit the loan amount approved?
I would hold off on leasing until after the house keys are in your hands. You will qualify for a larger mortgage without a lease. You may get a better interest rate, and if you do, you’ll have it for 30 years on a high mortgage balance, not 3 years on a low lease balance. Of course it all depends on your income. If you make enough money, the lease won’t matter much if at all. If you are borderline, the additional debt of the lease could keep you from the home you truly want.
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.
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