Cost vs. Benefit- Pay an auto loan as normal or lower monthly bills and refinance for a better debt to income ratio?

Cost vs. Benefit- Pay an auto loan as normal or lower monthly bills and refinance for a better debt to income ratio?
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#1

So, i’m a cosigner on a car loan with my hubby as the main borrower. We only have a year and a half left on it but i’m considering trying to find someone to refinance with to lower the payments. Although we are close to paying it off, if the payments were lower I would have a better income to debt ratio. We are trying to get a mortgage loan to buy a house (we are going for a VA home loan) and i’m paying the same amount a month for an older car than our other because at the time we got a higher interest rate. To better our ratio, would it be beneficial to stretch it out longer so we have more available to us per month? Or would that hurt more than help?


#2

Hello, Ladyroses, and welcome to the community! This is a tricky situation, because applying for the new loan could ding your credit scores right at the time you need them to be their highest so you can get a good deal on your home loan. That’s why we recommend that people avoid applying for any other credit if they’re in the market for a mortgage. However, the improvement in your debt-to-income could help with the mortgage, even if it won’t improve your scores.

I’ll ask one of our mortgage experts to weigh in.


#3

Thank you so much :slight_smile:


#4

Hey Ladyroses, thanks for your question. While my response might feel like more questions than answers, I hope to give you some important things to consider.

  1. My first question is, how quickly do you plan to move forward with your home purchase? (I’m assuming you hope to buy sooner rather than later, that is before the auto loan will be paid off.)
  2. Do you have enough money saved to pay off the auto loan in full? (You mentioned there wasn’t all that much time left.) If so, that eliminates the worry of the added debt.
  3. Have you ever calculated your debt-to-income ratio (DTI) on your own to see if you’re even carrying too much debt? The reason I ask is because the VA doesn’t specify a maximum DTI but generally aims for less than 41% (but there are exceptions if your DTI is higher than that).

Give our DTI calc a spin to actually see what your DTI is: https://www.nerdwallet.com/blog/mortgages/debt-to-income-ratio-calculator/.

Next, we have an entire suite of VA information if you’re curious to learn more: https://www.nerdwallet.com/article/va-home-loan.

And I’m happy to answer any other questions you have. Thanks for visiting NerdWallet!


#5

Thank you so much! Yes, we are in a bit of a rock and a hard place… And people are going to get sick of me in here but it did help.


#6

:grin: We mean it when we say we’re glad you’re here! Happy to help any way we can, so keep the questions coming.