a 662 credit score should be fine for FHA. If you have a stable job and $$ in reserve, a debt to income ratio approaching 50% should be OK too. I would speak to a lender first to see what you qualify for, and if you are approvable for your desired mortgage amount "as is", then I would keep your money in the bank until you get into the new home, THEN decide what to do with it. A lot of people go out and pay off all their debt before buying a home, only to find out the home requires a substantial investment (paint, carpet, furniture, etc). In my mind, it doesn't make sense to pay things off now only to find yourself in the same situation 6 months or 12 months down the road.
If you must pay off some debts now, focus on paying off the debt with the highest interest rate first. Keep the car loan, because installment loans (as opposed to revolving debt like credit cards) weigh in heavier towards building up your credit score.
If I can be of any assistance please feel free to contact me at 313-622-7383 or via email at firstname.lastname@example.org.
Best of luck
For FHA, you credit score is fine. Unlike Conventional, it will also afford you the best current rate without having to pay any discount pts. Concerning paying off debt, if not to increase your score, the only other reason to pay off (not down but off) debt is to increase the loan amount you can qualify for. What is the price range your looking to get approved for? What is your current monthly income gross? Do you have more than 2 years on the job? Are you looking to include overtime or bonus? If so, you'll need to receipt of both over the past 2 years as well. All these are common and key questions a loan officer will ask you in the qualifying process.
With regards to your DTI, FHA requires that it does not exceed 43% w/o strong compensating factors. For Conventional its now 45%.
With regards to your installment loan, you are correct, paying it down won't decrease your number of remaining payments.
Finally, its always more advantageous to show and keep as much cash reserves as possible. I'm a local lender, and if I can be of any further assistance in getting you approved, you may contact me at your earliest convenience.
Rudy R. McDowell / Senior Loan Officer
770 S Adams Birmingham, MI. 48009
o: 800-678-6663 Ext 5154 / f:248-594-6156 /d: 313-410-1344
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