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QuackyDuck10

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Can I still get a mortgage with an auto loan already out in my name?
I have a few questions.. I'm looking at potentially buying a house within the next 1-2 years. I do have an auto loan out and still owe about $13,000 on that. However, I've thought about paying that auto loan off as soon as possible and as early as possible so it's out of the way and I can focus on saving more money for a house. If I do pay the auto loan off early, would that better my chances of getting a good deal and good interest rate on a house? I have very good credit but I don't want to mess that up by paying off a loan too early. Or should I continue paying my auto loan off and try to get a house loan at the same time?

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So it is important to distinquish between the 2 main factors in qualifying for a home loan. 

#1 Credit score - your credit score will determine your interest rate and what loan program you can utilize

#2 Debt to income ratio (DTI) - this is the sum of all your MINIMUM monthly payments on your credit report plus the estimated house payment compared to your  GROSS monthly income expressed as a percentage

DTI example: 

Gross monthly income = $5000 

Credit Report Debt = $300 auto pmt, $25 Credit card payment, $250 student loan payment = $575

Estimated house payment = $1,250

$575 debt + $1250 house payment = $1825 total debt payment

DTI = $1825 / $5000  = 36.5%

So your question about paying off your car loan would affect your DTI but not neccessarily affect your credit score.  Depending on your Gross monthly income, it may be worthwile to pay off the car loan before applying.  However, if your DTI is less than 45% with the car payment, i would tell you it would be best to save the money for a down payment on the home loan.  If you have excellent credit (>680) you can even get closer to 50% DTI depending on the loan program. 

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There aren't a lot of simple answers

for you here.

First, The auto loan, Before trying to pay off early, check with the lender to see if there are any fees or penalties for paying off early. They often offset the lose of the interest by charging you to pay off or make larger payments.  Most of the time it won't make a huge difference if that loan is paid off or not, the balance should be relitively low by the time you try for a mortgage.  Having paid off that loan early is not going to help with the mortgage.  Lenders like to make money and they don't want to see that you pay off your debt ahead of schedule.

Secondly,  Mortgage companies use a different formula for your credit score than a standard FICO.  The generally use an in-house Credit scoring algoritum that will give a score based on the last 10 years of your credit report.  So make sure that before applying for that mortgage that you have paid down all your debts/credit cards as much as you can, to 0 if possible. Other than the auto loan, you should have as little debt on your report as possible.

Good luck

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