Answer needed!!!

scooby21 · Joined: 02 Dec 2007 Posts: 5 Location: Richmond,VA

I am looking to buy a car in the next 2 months. We are also looking to buy a house in the next 6 months. How will this affect our credit? Should we wait on the car?

liverichly · Joined: 10 Feb 2005 Posts: 195 Location: Orange County, CA

Well if you buy the car before the house, the car payment is going to be included in your debt to income ratio. So if you can qualify for the house/mortgage with the car payment - shouldn't have any problems there. Also, a new trade line on credit usually dings the credit score for 4-8 months... so if your score is borderline, if you can swing it, then it's something I'd put off until after you buy the home. Have you spoken to your mortgage professional about your debt to income ratio and how a new car payment would impact it?

m2c · Joined: 03 Aug 2005 Posts: 743

Question is whether your asking the wrong question. My GUESS is the answer to your first question is “yes”. Since you ask about “looking to a house” as opposed to “another” house, I surmise that your credit is relatively “thin” and unseasoned. If this is correct, the effect of a new trade line will decrease your FICO more than with someone with long standing credit. The real question is whether the new car will significantly increase the cost of financing your home. The answer is “maybe”. Rightly or wrongly both Fannie and Freddie have introduced credit score “hits” which effective raise the cost of mortgage financing for SOME borrowers. Basically if your representative FICO is less than 720, you may experience increased financing costs. Not really so bad when you consider the average FICO is around 680. If the “average Joe” doesn’t want to be hit by these new rules, Joe better have 40% down payment. Not sure of your liquidity position, but many “average Joes” I’ve seen don’t have or want to use that much money. To see possible effect go to https://www.efanniemae.com/sf/refmaterials/llpa/pdf/llpamatrix.pdf Bottom line is that if your FICO is around 800, any likely credit score reduction will not increase the cost of borrowing but I guess you’re dealing with limited knowledge at this point. See a mortgage professional or at a minimum get your FICO score on www.annualcreditreport.com Latter method will cost you either $5.00 or $7.50 per score but the number is not a “mortgage model” FICO number (close though) with the big advantage is that your inquiry will not effect your FICO score.

Second question. Are you putting the horse before the cart? What difference as to debt load whether you buy the car before or after? Yes, there’s the qualification issue but you may wish to consider your project financial position with the car payment in place when deciding on the price range of houses to consider. Automated underwriting systems will “approve” borrowers with debt loads far in excess of what I would consider comfortable. You have to consider what debt level you desire BEFORE falling in love with a home. See a mortgage professional before falling into the clutches of a real estate agent.