Home Buying in Pasadena>Question Details

R, Home Buyer in Los Angeles County, CA

I have about $15,400 saved and make about $78200 per year. The only debt that I have is 2 car payments ($717

Asked by R, Los Angeles County, CA Sun Oct 19, 2008

per month). I was thinking about paying off one of the cars and bringing my monthly debt down to 400 per month. That would take about $3000 of my savings. Should I go ahead and pay the $3000 off or just continue to pay if monthly? I have excellent credit otherwise and am looking to purchase towards the beginning of next year.

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Hello Rw.
I agree with the professionals who suggest you speak to a lender. But, here is the real question....Where do you feel comfortable with your overall payments? True, eliminating the car payment will get you more purchasing power, but you may not need that. The $3000 in a down payment, to reduce the monthly mortgage, only saves you $18 per month. Its $6 for every thousand borrowed at 6% interest rate on a 30yr fixed. (Adjust for higher rates, but this is a good barometer.) When you look at the 2 options, $3000 put toward saving $20 per month, or saving $317 per month is a no-brainer. Still talk to a lender as they also have trade line requirements, on top of credit score, income/debt ratio, job history, etc...requirements.

Just don't let many of them run your credit. Let the one you like the best run it, for now. Your middle credit score is what lenders will use to educate you, on what programs they have for you. Sounds like you may just go with a conventional mortgage, but the PMI (when you put less than 20% down) can be costly too. Talk to someone you trust soon, to get you on the right path.

I'm not licensed in CA (and its a far drive from Philly) but if you have any questions or need someone out there, let me know. Visit my web site for more useful info too.

Good luck!
Bill
Web Reference: http://www.billeaves.com
0 votes Thank Flag Link Tue Oct 21, 2008
Hi RW,

That is a greaet question. If you pay off one of your cars that will give you about $32,000 more in purchasing power. Meaning you could purchase $30,000 worth more of a house. You have to be very careful because given the curent market conditions, the lender will probably require a nice downpayment in addition to your closing costs (the cost of getting a loan, title insurance, etc...). Thos $3,000 could allow you to move into the house or even allow for purchasing items such at widow treatments, lawnmower, etc...

Hope this helps.

Juan Carlos

Feel free to contact me if I can be of further assistance.
1 vote Thank Flag Link Mon Oct 20, 2008
Mortgage broker is your best person speak with review all the particulars for your files.
http://www.lynn911.com http://www.homes-for-sale-dallas.com
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Tue Oct 21, 2008
Check with your loan officer and then stay in contact with them and let them know your progress. Loan guidelines are changing and likely to change again over the next year. They can give you all kind of senarios about down payment, debt to income ratios, etc. They're really the best people to advise you on this type of question. If you do it now, they might also give you some additional targets to meet.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Mon Oct 20, 2008
Bruce Lynn, Real Estate Pro in Coppell, TX
MVP'08
Contact
APPLY FIRST!! Don't do anything until you do that!!
Loan Officers have a way in their software to simulate your scenarios and tell you 'for sure' which is best for YOU!!
Good luck
0 votes Thank Flag Link Mon Oct 20, 2008
It depends on how much house you want to buy and how much you need to borrow. Most lenders use a 31/42 debt to income ratio. That means your monthly housing debt can not exceed 31% of your gross monthly income, and all of your monthly debt (including housing, car loans, credit card debt, student loans, etc) can not exceed 42% of your gross monthly income. If any of your debt has less than 6 - 9 monthly payments left, underwriters sometimes may exclude that debt from your debt ratios.
0 votes Thank Flag Link Mon Oct 20, 2008
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