Looking to buy a home around Jan. 2008 but should i buy a car first?

Question

My husband and I will be looking to buy a home around Jan. 2008. However, we have a really high car payment that we would like to ditch first so we can afford a mortgage. My question is should we hold on to our higher car payment and have a longer payment history but with high debt to income ratio (our credit isn't that great) or should we get a lower car payment for a lower debt to income but short payment history?

Answer 1

Auto finance is what I do for a living and there are several things to take into consideration.

If you are looking to lower your car payment, you need equity in your current vehicle. Otherwise the amount you owe will be greater than the amount your vehicle is worth and that amount will be added to the sales price of the vehicle you are trying to buy.

This will increase your LTV (loan to value) and effect your interest rate.

When people are upside down on their trade in there really are only three ways out, first is to make a large down payment eliminating the negative equity, second is to buy a vehicle that is even more expensive and will absorb the negative equity (which raises your payments)and third is simply to just keep it until you reach a equity position.

Now, if this is not a issue, I would trade your vehicle and get a lower payment and debt before I applied for the home loan. Don't worry about your pay history, anyone who looks at your credit is going to see the closing date of your original loan and the opening date of your new one and know what you did.

Answer 2

Well the only way to "ditch" your current car loan without causing a lot of damage to your credit is to pay off the loan. If you can't pay it off then think about trying to refinance it for a lower interest rate. The lower interest rate should give you lower payments.

A paid loan looks very good on your record so if you can pay it off that is a very good option. Also, since it would be paid, and as long as it is in decent shape, you should keep the car, and do not take out another loan for a new car right now. Since Jan 2008 is only 6 months away any new loan you get could actually harm your score a bit because it is considered new credit. You need at least a few months with the new loan to bounce back. You also have not added anything to your debt to income ratio in this case because you have paid off the vehicle.

The other thing you need to look at is your overall picture. If you have credit card debt over 30% utilization(Credit Available Vs. Total Credit Used) you need to get that amount down. Also, pay every bill on time every time. Doing both of these will also help your score.

Answer 3

Buy the car first. Your current car payments will show up so that will give you payment history and the lower payment will greatly improve your chances of getting a mortgage and a lower PMI and interest rate.

Answer 4

The length of credit history isn't nearly as important to your credit score as the amount of credit used to credit available ratio. Minimizing what you owe is far more important to improving your credit score.

If getting another car will mean you owe less than now, go for it. If it means you owe more, but are stretching it out for lower payments, it probably will hurt your credit score.

But having lower payments is a great thing all on it's own.

Answer 5

Either way, your car/loan/credit card payments should equal no more than 10% of your monthly income.

The longer payment history will show on the credit bureau, no matter what you do...

if you want more information you can reach me at

[e-mail].

Answer 6

It is almost impossible to get a lower car payment without flat out selling it and buying a junker. even it you go to trade you will have so much neg equity it will not work out.