Financing in Bridgeview>Question Details

Jimbo, Home Buyer in Bridgeview, IL

Does my Car payment count as an expense in calculating my ratios if I owe less than 1 years payments?

Asked by Jimbo, Bridgeview, IL Fri Nov 25, 2011

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It's nice to see a follow Illinois Resident. :) Yes, Shane is correct in both his primary post and follow-up. In the case of a car payment, it'll be >$100/mo so it would be included. If you can pay it off, do so now or hope that your loan gets an automated approval and that the lender doesn't deny the file for high ratios (a previous company I used to work for would often do this if you were >50% debt-to-income, even with an automated approval).

Best of luck!
1 vote Thank Flag Link Mon Nov 28, 2011
That depends on a lot of things, the type of mortgage you are using, the number of remaining payments at the time you close on the new home, etc. Here is a blurb on the subject from my government underwriting manual: Installment Debt
• Ten months or longer must be considered in ratios.
• If debt is 10 months or less but has an impact on borrower’s ability to pay the mortgage during the first several months, it may be considered recurring (per underwriter’s discretion).
Note: If the payment exceeds $100.00, the debt will be included in the DTI and must meet DTI guide lines.
It may not be an issue if you receive an Approve/Eligible from the AUS, good luck hope this helps,
1 vote Thank Flag Link Mon Nov 28, 2011
Shane is correct. If the car payment is a significant portion of your income it would still be considered. The underwriter would also question how you handle your money. If your car payment is for a lease the underwriter must consider that you would need a new lease or payments for a purchase.
1 vote Thank Flag Link Sun Nov 27, 2011
I respectively disagree Steve - less than 10 payments will count if the debt payment is significant like I mentioned. Someone who has 9 months left of a $600/mo car payment and only makes $3k/mo will *without a doubt* have the payment included in the debt to income ratio.
1 vote Thank Flag Link Sat Nov 26, 2011
Less than 10 payments should not count as long as it is a car loan not a car lease.
You will need to touch base with the loan officer to make sure that lender follows guidelines.
Good luck in your purchase,

Steve Smither
Senior Loan Originator
Midwest Equity Mortgage
1 vote Thank Flag Link Sat Nov 26, 2011
With installment debt (car loans, student loans, personal loans, etc.) the general rule is 10 or less payments & $100 or less in the amount of the payment it will be excluded from your debt to income ratio... however if it significantly affects your ability to meet your obligations with ≤ 10 monthly payments remaining, then it will be considered as part of your debt to income ratio.
1 vote Thank Flag Link Sat Nov 26, 2011

More good advice from Jim. Here's what to do next: get a referral to a Local Mortgage Banker. Mortgage Bankers in your community will provide you with a much higher quality of service and financing options than any "Big Bank." Local Mortgage Bankers have long been the source of excellent financing options for homebuyers. Further, Loan Originators who work at Mortgage Banks are LICENSED whereas Loan Originators who work for the "Big Banks" are only REGISTERED. There's a BIG difference.

Sit down face to face with your Mortgage Banker to be thoroughly prequalified. The Mortgage Banker will review all facets of your loan request to answer your questions with regards to the types of loans and maximum loan amounts you could qualify for.

Consumers have been led to believe---thanks to huge advertising budgets with the BIG BANKS---that they should go to their bank for a mortgage loan. This is the WORST place to get assistance with the BIGGEST PURCHASE of your life! These BIG BANKS are basically BIG CORPORATIONS. You're a number, at best. With a Local Mortgage Banker you will be treated like a friend and a client for life. You can't imagine the high quality of personalized service you will receive from a Mortgage Banker until you try.

As to price---rate and fees---competitive if not better than the BIG BANKS.

You can verify the License of any Licensed Mortgage Loan Originator at

Trevor Curran
NMLS #40140
Web Reference:
0 votes Thank Flag Link Mon Nov 28, 2011
Good morning Jimbo,

As you can see from the excellent responses from the Mortgage Professionals below---Shane, Steve and Annette---the recent trend to make it MORE difficult for Home Buyers to qualify for mortgage financing continues.

For a quick moment I was with Steve as to counting only a Lease payment against your income and deleting a car loan payment if it's less than 10 months from the qualifying calculation. But this has changed, as Shane cited, and very recently.

It's similar to the credit report nonsense that kicked in not all that long ago: while it's great a consumer has a good, or even high, credit score, that's not enough for our CRAZY industry any longer. That consumer must meet minimum requirements for the number of accounts open and active on the credit report.

Frankly, both these newfangled qualifying requirements fly in the face of what we used to call in the business, "Common Sense Underwriting."

In the case of your question, in my 22 years as a Mortgage Banker, a person who has demonstrated the ability to save money for a down payment and closing costs and has simultaneously purchased and financed a car and paid that car loan down to only a few remaining payments is a person who is a good credit risk for mortgage financing. It's a REAL WORLD scenario where that consumer demonstrates a healthy respect both for credit and savings towards a home purchase. Why should we now count that full car payment against the consumer if there's less than 10 payments? The car will be paid off and that consumer will happily park that paid-in-full car in the driveway of their new home.

I could understand this silly requirement if the potential mortgage applicant is a debt-hound. Credit cards are maxed, the car payment is high and the down payment is a Gift from family or withdrawn from a 401k or similar retirement account. That's a consumer who makes me nervous.

So, to return to your question: Shane nailed it. If the payment is a substantial portion of your monthly income it will be counted against you even if it's less than 10 payments. Oh, and the definition of "substantial?" That's the subject of a different rant altogether.

Trevor Curran
NMLS #40140
Web Reference:
0 votes Thank Flag Link Mon Nov 28, 2011
There is usually leeway for car loans with 10 payments or less remaining, however you best bet is to contact your lender to be sure.
0 votes Thank Flag Link Sat Nov 26, 2011
Yes - I have seen all current debt count. If you can pay it off - that is better for your ratios, but you also need to consider cash to close and downpayment. So, maybe not better to pay it off, depending on what you are trying to get.

If you need some help finding a home and working with a reputable lender, please let me know. I have seen quite a few very nice homes in the Bridgeview area and would be happy to recommend some.

Suzanne Hamilton
Broker Owner
RE Marketing Consultants
0 votes Thank Flag Link Fri Nov 25, 2011
Yes. If it's an expense, it's counted.

But if you owe less than 1 year's worth of payments, check with a loan officer or mortgage broker and find out whether it'd make sense simply to pay that loan off now. It shouldn't be that much ($3,000-$5,000, I'm guessing) and might help you substantially. Definitely check with a lender.

Hope that helps.
0 votes Thank Flag Link Fri Nov 25, 2011
Don Tepper, Real Estate Pro in Burke, VA
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