What impact would refinancing an auto loan to lower DTI have on mortgage shopping? Anyone with some guidance would be much appreciated!
Refinancing how? Is there a net paydown of outstanding debt? Is the interest rate lower? Is your monthly payment lower, leaving more cash to go toward mortgage payments? How much time between the refi and the mortgage shopping? In the near term, I would expect the auto refi to drop FICO some, both due to the inquiries, and due to the age of the loan, even if you are somewhat better positioned in terms of interest rate and monthly payment. After 6 months to a year of payments, I would expect you to be somewhat better off. If you pay off some outstanding debt with a 401K loan, if you are allowed to do so by your plan, your debt to income will improve, since your 401K debt is borrowing from yourself.
Thanks for your reply ontrack. The loan is current and has been for 16 months now but the rate and payments on it are high due to my credit blemishes when I assumed it. I am currently in the process of mortgage shopping but my DTI only enables me to afford houses that are either too small or substandard for me. My credit has improved since then but I'm worried that if I refinance the auto loan it will adversely affect any mortgage opportunity due to the timing.
"My credit has improved since then but I'm worried that if I refinance the auto loan it will adversely affect any mortgage opportunity due to the timing." It depends on your credit history. If you have very few established accounts and then refinance this auto loan, which has been established for 16 months, and replace it with a brand new loan, it could have an impact. But, if you have other accounts established for a good length of time, with good size credit limits, and that are in good standing, it might not cause an issue. Check with your Mortgage Planner to review your credit history with you and determine what the lender's credit history requirements are. Also, if you go for the refinance, keep documentation proving the account is paid, so your Mortgage Planner can do a rapid rescore and help your DTI.
What state are you located in? Because DTI's can usually be worked with. I'm a SR. Loan Consultant and work with issues like these. Depending on which state you are located there are ways to get around these issues.
I'm in WA State but currently deployed in Afghanistan. The loan payment is 315.00 and has a remaining balance of 6500.00. I have some funds to pay this off but however it will leave me short for closing costs, down payment and I am separating from the Navy in April and dont want to deplete my savings. Any more guidance would be appreciated.
