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Credit Score Questions - Future home and car purchase
Posted on 8/10/16 at 12:32 pm
Posted on 8/10/16 at 12:32 pm
Wife and I are hoping to buy our first house in about 8-10 months, so I guess we will go through the whole qualification process in about 6-12 months or so. We will have a good bit saved up for more than a 20% downpayment, closing costs, possible HOA transfer fee, and a even some a small budget for new furniture.
We pay cards off every month and have paid down most of the debt we've had. We just have a little bit of 1 loan left at a tolerable interest rate. Also, we both have good credit scores (750+) per creditkarma and Amex.
Here is the problem. It looks like I will need to get a new car, kind of unexpectedly, within the next 3 months or so. I definitely have the cash, but with rates so low, I wouldn't mind taking out a loan for at least part of the car (~10k at a minimum).
How would this affect my home-buying situation? Will a new loan app bring down my score much? Also, I assume the new debt service would not be favorable for my potential mortgage qualification, right? Obviously, if I pay cash for the car, it would dip into my down payment savings. I could probably still afford 20%, closing, etc., but I wouldn't have much leftover.
On the same note, should we do anything with the other small loan that we still have? Its a student loan with a long horizon and pretty low interest so the debt service is minimal. I figured it was worth the good credit history to just keep paying it until after we get settled in the house. Any thoughts?
TL;DR - going to buy a house in about a year, need a car soon, whats the best approach for minimal credit impact?
We pay cards off every month and have paid down most of the debt we've had. We just have a little bit of 1 loan left at a tolerable interest rate. Also, we both have good credit scores (750+) per creditkarma and Amex.
Here is the problem. It looks like I will need to get a new car, kind of unexpectedly, within the next 3 months or so. I definitely have the cash, but with rates so low, I wouldn't mind taking out a loan for at least part of the car (~10k at a minimum).
How would this affect my home-buying situation? Will a new loan app bring down my score much? Also, I assume the new debt service would not be favorable for my potential mortgage qualification, right? Obviously, if I pay cash for the car, it would dip into my down payment savings. I could probably still afford 20%, closing, etc., but I wouldn't have much leftover.
On the same note, should we do anything with the other small loan that we still have? Its a student loan with a long horizon and pretty low interest so the debt service is minimal. I figured it was worth the good credit history to just keep paying it until after we get settled in the house. Any thoughts?
TL;DR - going to buy a house in about a year, need a car soon, whats the best approach for minimal credit impact?
3
Posted on 8/10/16 at 12:38 pm to kennypowers816
It's not the credit impact that you should be worried about....it's the debt to income ratio. Good luck!
Posted on 8/10/16 at 2:33 pm to btnetigers
Your credit will drop a few points immediately for a "hard inquiry" on your credit. This happens anytime someone looks into your credit at any of the three reporting agencies when you are applying for a loan, mortgage, or CC. It should recover from that quite quickly, and have minimal affect on your ability to get a good rate on your mortgage if both of your scores are above 750. Like the above poster noticed, what you should worry about is your income to debt ratio. The bank will take this into account. If you have a banker, or bank you normally deal with (if you dont, I would highly recommend a credit union of an type) go and ask them about this situation. They should be able to give you some hypothetical in those scenarios.
Posted on 8/10/16 at 2:48 pm to darnol91
I agree with darnol91. My customers buy vehicles, typically, 4 months or further before closing on mortgage. To give them time for score to recover, but they also make sure to have the debt to income down so they know what they need to finance/lease payment to be so they do not worry about the future home purchase. GL (email me under my profile if you are interested in new Toyota or pre-owned options)
Posted on 8/10/16 at 3:09 pm to kennypowers816
If you buy a new car and finance it and wait a few months, your score may actually go up, since you will still have pretty low utilization and you now have another form of borrowing on your report, with good payment history.
Just check your debt to income ratio. If one new car is enough to throw it out of whack, that is a sign that perhaps you need to look for a less expensive house, or wait on the house.
Remember that the ratios are there because they target the ability to pay the mortgage. You can't drive a car forever, at some point you will need to buy one.
I'd hang on to my cash. Things are ALWAYS more expensive than you think they will be, especially your first purchase.
Just check your debt to income ratio. If one new car is enough to throw it out of whack, that is a sign that perhaps you need to look for a less expensive house, or wait on the house.
Remember that the ratios are there because they target the ability to pay the mortgage. You can't drive a car forever, at some point you will need to buy one.
I'd hang on to my cash. Things are ALWAYS more expensive than you think they will be, especially your first purchase.
Posted on 8/10/16 at 3:16 pm to kennypowers816
Credit inquiries older than 6 months have little to no impact on your mortgage FICO score.
If you pay your credit card in full before your statement period ends to report a $0 balance, that is the best way to improve you credit score.
Your creditkarma/CC statement/free credit score does not give you the FICO score used in mortgage decisions. Credit Karma uses the FICO 8 or 9 model that is typically ~50-75 points higher.The only official score can be found for a fee from the company that generates the scores FairIsaac on myfico.com look for a package with the mortgage scoring model
If you pay your credit card in full before your statement period ends to report a $0 balance, that is the best way to improve you credit score.
Your creditkarma/CC statement/free credit score does not give you the FICO score used in mortgage decisions. Credit Karma uses the FICO 8 or 9 model that is typically ~50-75 points higher.The only official score can be found for a fee from the company that generates the scores FairIsaac on myfico.com look for a package with the mortgage scoring model
Posted on 8/10/16 at 3:21 pm to LSUFanHouston
quote:
your score may actually go up, since you will still have pretty low utilization and you now have another form of borrowing on your report, with good payment history.
It almost assuredly will go down. Your credit mix is ~10% of your credit score while your credit history length is 15% and new credit 10%
I am assuming that the OP is a younger person with more limited credit history. This will negatively affect him in the following ways (% weight for credit score)
-Lower Average Credit Account Age (15%)
-Credit Inquiry / New credit account added to history (10%)
-Amounts owed (30%)
This post was edited on 8/10/16 at 3:22 pm
Posted on 8/10/16 at 3:53 pm to GenesChin
Thanks for all the help from everyone.
Is there a sweet spot for Debt/Income ratio? It looks like if I didn't put anything down on the car and bought something a little above my ideal price range on the house, I'm right around 30% debt/income. Like I said, that's definitely at the higher end of where I would want to be, but I could do it. Just curious what the banks would say.
Correct, but not super limited, just not old. Avg Age of accounts is 3.75 years per Creditkarma. Oldest account is about 8.5 years. Total of 10 accounts
Is there a sweet spot for Debt/Income ratio? It looks like if I didn't put anything down on the car and bought something a little above my ideal price range on the house, I'm right around 30% debt/income. Like I said, that's definitely at the higher end of where I would want to be, but I could do it. Just curious what the banks would say.
quote:
I am assuming that the OP is a younger person with more limited credit history.
Correct, but not super limited, just not old. Avg Age of accounts is 3.75 years per Creditkarma. Oldest account is about 8.5 years. Total of 10 accounts
Posted on 8/10/16 at 4:14 pm to kennypowers816
You don't want your debt to income ratio to be above 45%
Posted on 8/10/16 at 4:23 pm to ellesssuuu
quote:
You don't want your debt to income ratio to be above 45%
^This and that is counting gross income. And since you're in Houston check out Colonial National Mortgage in Houston when you're looking into home financing
Posted on 8/10/16 at 4:43 pm to HYDRebs
quote:
45%
Dang, that seems really high. Not sure I would want anywhere near that much to pay every month.
quote:
Colonial National Mortgage in Houston
Still a while away, but thanks for the tip. Did/do you use them?
Posted on 8/10/16 at 4:50 pm to GenesChin
quote:
It almost assuredly will go down. Your credit mix is ~10% of your credit score while your credit history length is 15% and new credit 10%
I am assuming that the OP is a younger person with more limited credit history. This will negatively affect him in the following ways (% weight for credit score)
-Lower Average Credit Account Age (15%)
-Credit Inquiry / New credit account added to history (10%)
-Amounts owed (30%)
If he is younger, average age won't be much of an issue as they will all be low.
Inquiry will be gone before he goes to underwriting. New account will help him.
He should have no issues at all in underwriting, provided he goes to an actual mortgage company that knows how to underwrite a loan, and not some company that only looks at credit scores when you push a button after a countdown from 10 to 1.
Posted on 8/10/16 at 7:22 pm to ellesssuuu
Housing PITI & HOA or condo/Total debt service depending on program: 25/33 to 28/35 max. Those are typical and based off gross income.
Maybe you're thinking about FHA, which is based off net income.
Maybe you're thinking about FHA, which is based off net income.
Posted on 8/11/16 at 11:42 am to Jag_Warrior
All mortgage lenders/programs go off gross income. Not a single one is net.
Posted on 8/11/16 at 11:47 am to btnetigers
quote:
It's not the credit impact that you should be worried about....it's the debt to income ratio
Exactly. I bought a new car 6 months before I bought a house. I HAD to have a car, but it did end up impacting my debt to income, and I didn't get the exact house I wanted.
I am wanting to move closer to work, but waiting until my car is paid off to do so.
Posted on 8/11/16 at 12:10 pm to Sacrifice_blunts
Sounds good. Thanks for the update. The FHA/VHDA program used to be calculated off net income. I have no knowledge of when that changed.
I see that the FHA/HUD guideline for debt to gross income is 31/43. I assume that's up to date.
I see that the FHA/HUD guideline for debt to gross income is 31/43. I assume that's up to date.
This post was edited on 8/11/16 at 12:11 pm
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