Home Buying in Chino>Question Details

Quis, Home Buyer in Ontario, CA

What is more important to home mortgage lending. To have my credit cards and auto loan paid off $16k or leave that $16 in savings for them to c $ down

Asked by Quis, Ontario, CA Tue Jul 5, 2011

I'm putting a majority of my money down with my 401k savings, but I have apprx $30k in sav to assist with down and closing cost. Would the banks rather see the credit cards and auto loan paid off or see that money in savings?
Thanks,

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Hi "Quis",

What I recommend is you hold onto the $30k in savings you have, and during the initial interview with your eventual loan officer, when you go over the sales price, loan amount, income and your monthly debts, an analysis will be able to be done to determine if your debt to income ratio is too high to be able to qualify. If it is, then whatever debt payments (credit card, car loan, etc.) are too high for you to qualify would need to be paid off using a portion of the $30k.

Plus banks always love to see that you have money in the bank for a rainy day, these are called "reserves", so if you used that money to pay off debt when you didn't need to, but you needed the reserves, it'd be hard to get that money back from the creditor you just paid off (remember you can't "borrow" money to build up your reserves). But there may not be any need to pay off your debts in order to qualify, so that is why I wouldn't recommend you do anything at this moment in time.

However you mentioned one item, and that is you'll be using your 401k savings as the down payment, is there any reason you are looking to do that instead of using the $30k in savings instead? Remember that borrowing from your 401k would not allow you to borrow that money later in case of a real emergency (perhaps buying a home is an emergency though), the money you are borrowing doesn't see investment growth, and there is even the chance that the loan would have to be repaid within a short period of time if you left your job or face fees/penalties/taxes. I know you didn't ask for that advice, but it is food for thought.

Let me know if you have more questions or would like further info.
2 votes Thank Flag Link Tue Jul 5, 2011
As long as you meet the debt-to-income ratio, I recommend keeping the savings in the banks.
0 votes Thank Flag Link Wed Aug 29, 2012
We would have to chat! We have some down pmt programs that assist you with the down pmt.
this way you would be able to make sure that you are on your feet, in your new home before you
decide which way works best for you. We can also tell you which credit cards to pay down to boost your fico score up too! Would love to give you a free consultation!
0 votes Thank Flag Link Wed Aug 29, 2012
Debt to income ratio is important. However, a consistent credit history is important as well. Creditors would much prefer to see a credit history showing that you stay on top of your obligations and don't let them get away from you.

Personally, and of course depending on the overall dynamics of your particular transaction, having a balance on your credit cards isn't a bad thing as long as you're not maxed out on your credit lines and you pay down on your balances instead of just paying interest every month on them.

In other words if you have a card with a $25k credit limit and only have $5k against that line at any given time then your credit availability looks good and your credit worthlessness is greatly enhanced ergo your score goes up.

But whatever you do don't cancel a line of credit either. Some folks are under the impression that having too many credit cards is a bad thing. It is if you're maxed out on them but if you have say 10 credit cards that yield $100,000 in available credit and you only have 16k against that 100k you've got 84k of available credit.

Now if you cancel say 50k of your 100k that takes your available credit down to 34k and could actually lower your FICO score. Make sense? If your 16k in credit card and auto loan debt is squeezing your credit availability then lower it in order to get a higher credit availability ratio.

But if it's not keep your money in the bank. Lenders love to see liquidity. Hope this helps.
0 votes Thank Flag Link Thu Jul 7, 2011
When the underwriters look at you application for approval , what they are going to look for is if the ratios are in line. This would be 31% of your gross monthly income going towards you monthly mortgage payment including taxes and insurance. A total of 46% of all your bills to go towards you total gross monthly income. If you credit card payments and auto payments exceed the ratios then the underwriter may ask you to pay them down or off. If your ratios are in line and you have assets in the bank for reserves after closing, then this situation would be termed a strong compensating factor making it ideal for loan approval.I have been in the lending business for 18 years and have a mortgage lending license with the state and federal goverment.
If you need more explanation you can call me at 909 210-5598
0 votes Thank Flag Link Tue Jul 5, 2011
Best answer? You need to talk to a lender. Please see the attached list of of Affiliates that I work with. There are 3 different lenders on that list that are all great and will take good care of you and give you very sage advise. Let me know if you have any trouble getting a hold of them. Thank you so much and have a great day!
0 votes Thank Flag Link Tue Jul 5, 2011
Hi Quis:

It all has to do with your debt ratio. (Money going out as to money coming in) You need to check with your lender and find out what is needed to qualify for what.

If your credit card minimum payments and your auto payments do not harm you with qualifying for the home you want, then I believe you should leave it in the bank for the un expected items that come up when you purchase a home, but your lender is your best source for this question.

Good Luck!
Diana 909-560-0145
Web Reference: http://dianam.com
0 votes Thank Flag Link Tue Jul 5, 2011
Hello!
I have worked in the financial end of real estate for 7 years. What I can tell you is as long as your credit cards are below 50 % of limit , no lates and no lates on the car payment. It is much better to have the money in the bank . You will always have to show some type of reserves to the bank and the more the better. I hope this helps !
0 votes Thank Flag Link Tue Jul 5, 2011
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