Auto Loan Has Big Impact On Mortgage DTI
An auto loan is most likely the second largest payment you will have besides your mortgage payment. Some folks have auto loan payments that are either equivalent or larger than their potential mortgage payment. If you are in the process of buying a home and applying for a mortgage loan as well as an auto, I strongly recommend that you hold off in buying an automobile until after you have close on your home. In the event that you really need to purchase a car prior to buying a home, I strongly recommend that you consult with your mortgage lender before you make this critical move. If at all possible, try to avoid purchase a vehicle until after you close on your mortgage loan.
Auto Loans Have Big impact On Debt To Income Ratios
Auto loans has a big impact on debt to income ratios. Debt to income ratios are the sum of all of your monthly payments which include automobile loan payments, minimum credit card payments, minimum student loan payments, and other minimum revolving and installment monthly payments divided by your monthly gross income. Credit card minimum monthly payments are normally $25.00 per month, however, an average automobile loan payment can be north of $300.00 per month. A $300.00 monthly automobile loan payment will reduce your mortgage loan by $61,000 for a mortgage loan on a 4.25% mortgage rate 30 year loan. The reason automobile loan payments are so large is because most automobile loan programs are spread out over 3 to 5 years, which is a short term compared to a residential mortgage loan.
Exemptions On Not Counting Auto Loan Payments
There are certain exemptions where a mortgage loan underwriter will not count your monthly automobile loan in your mortgage qualifications. If you are a co-signer on an automobile loan and can prove that you have not made the automobile loan payment for the past year and can provide cancelled checks for the prior 12 months from the main automobile loan borrower, your monthly automobile loan payment will not count towards calculating your debt to income ratios. Also, some mortgage lenders will not count your monthly automobile loan payment if someone else has been paying for it for the past 12 months as long as you can provide cancelled checks from the person paying the automobile loan.
Auto loans that have 10 months or less left on payments will not count towards debt to income ratios mortgage qualifications. However, if the auto loan is a lease, it will count towards debt to income ratios.