Money Matters
SmilelyEyes12
member
Dear Community,
Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
If you have questions about this, please email help@theknot.com.
Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
What to do?!
Hello!
I have been a lurker for quite sometime now - I love reading all of the posts, everyone is so informative! I would love some insight if possible!
So here is some background - DH and I have been married for almost 2 years (yay!) We are hoping to buy our first home in the next 8-10 months. I struggled HORRIBLY with credit card debt in my early 20's. However - this October I will have plowed my way out of 20k in credit card debt!!!
I know before you buy a house - you must be careful with your credit, but my current car loan is at a super high internet rate (had to buy when my other car was totaled and was in the beginnings of paying off my debt a year and a half ago) My score has dramatically increased and i am assuming after October will be even better. DH credit is great and has been for awhile now.
My question is - would it hurt at all to refinance my car loan this year if going to apply for a mortgage next year? I am not really borrowing any MORE money, but it is still a new loan. I am hoping to get a shorter loan term with a MUCH better interest rate. OR should it wait until after we have secured a mortgage ect?
Any information would be great!!
TIA
Re: What to do?!
Personally, I would probably wait until you have secured a mortgage pre-qualification. It doesn't ding your credit a ton when your credit gets pulled, but I have seen people get declined by mortgages because they are just a couple of points below the threshold (I work at a bank). If you had excellent credit, I wouldn't worry about it. However, it sounds like you might not be quite there yet, so I would just focus on keeping your credit score as high as possible, even if it is just a couple points.
Also, the mortgage lender should be able to advise you if they would recommend refinancing your car or waiting, or if they have other credit advice for you to do before they will pre-qualify you.
I was sort of in your exact situation when I was looking to buy a home about 5 years ago. At the time, my credit was okay, but not great. I had already gotten my prequalification on my mortgage, was actively looking for a house...and then my car got totaled!
I was practically in tears talking to my lender because I needed a car, but was nervous about how applying for a car loan would affect getting a mortgage. He told me that, as long as my new payment was the same or less than my old payment, it wouldn't matter at all because I was really just replacing one auto loan for a different one.
In fact, my new auto payment was $100 less per month than the old one and that raised my prequalification by $30K!! I was shocked at what such a little difference in monthly obligations did for my prequalification.
However, for reasons not related to any of that, I did not buy a house until about 18 months later.
If it were me, I would refinance the car rate now and seriously consider waiting on the mortgage depending on several factors:
1) How much you have saved in an E-fund
2) How much you have saved for a down payment
3) How much other debt you have (car loans, student loans, etc.)
4) The state of your retirement accounts
Congrats on the upcoming CC debt payoff! I'm sure it feels great
Congrats on the CC debt!!!
I would talk with a mortgage lender (the one you plan to use to buy your home) first just to get their advice on this scenario. But....
Having also worked as a loan officer before (not in underwriting, though). My opinion would be that refinancing a car loan for a lower rate AND a same or shorter term with a monthly payment that was at or lower than your current payment wouldn't hurt you in underwriting department's eyes even if you dinged your credit a few points. But, what's your credit starting point prior to a car loan re-fi??? High 700's? Low 700s? 600s?
Caveat as PP mentioned, underwriting has credit score thresholds. And, if you are beneath that threshold when you apply for a mortgage, then A. You won't get the loan or B. You will get the loan, but with a higher interest rate.
Since a mortgage is such a long-term loan - I would opt for as low of a rate as you can get. So, if you end up saving a few hundred bucks in the short-term via a car loan re-fi, but have to have a higher mortgage interest rate, you will be wasting money as a higher mortgage rate will cost you more in the long run (literally 10's of thousands of dollars) than what you saved on the car re-fi. At all cost, do what you can to get the lowest mortgage rate possible.
If you know the range of your credit score, and you are in the mid or high 700s, then, you may wish to re-fi the car. But, if you're in the low 700's or into the 600's, I'd say wait.