Client Question: Should I pay off my car note before buying a house?
My answer:
It’s not necessary. Usually this is mentioned if a person has a high debt-to-income ratio.
Here are a few true accounts from clients of mine.
Client 1
His Debt-to-Income was low enough to be approved for a mortgage but not a high enough amount for the house he wanted. So I advised him to look at a refinance option with a lower interest rate.
It worked. The refi lowered his monthly payment and gave him just enough cushion to be approved for the higher amount he needed.
Client 2
Her Debt-to-Income was also high because of a high interest rate on a car note. She was near the end of her payments, so I advised 2 things: A) You can wait until you pay off the few remaining payments or B) You could refinance that smaller amount as a personal loan or even better, a line of credit.
In both scenarios, she would lower her Debt to Income ratio per month, but with option B, she could buy her home faster.
As you can see, for Client 2, the options of paying it off first, was just as good as the refi. But Client 1 had years left on the car note. A refinance was a much better option for him.
Hope this helps.