Trading in car before or after mortgage pre-approval?

[Tina in FD]

I’m a longtime lurker on the budget board and super proud to say I’ve managed to pay off all of my debt except my mortgage (3 years to go in it). But my question is about my daughter....

she is 25 and is wanting to get pre-approved for a mortgage here within the next few months, possibly looking to move (out of my house thank goodness ) and into her own space. She is a teacher and has over 20K saved. Her only debt is $9k on her car (trade in is worth $12k) and a student loan. The new position she accepted next year will have a commute of about 40 minutes one way and she has a small car (Toyota Corolla iM) with fantastic gas mileage BUT isn’t the best in the snow.

she’s afraid if she trades in now for a diff vehicle (about the same loan amount) that it will hurt her home approval process. BTW her credit score is 815. Any advice would be greatly appreciated!

 

[havaneselover]

Sounds like she's very mature and responsible. She should qualify for the best rates and trading in the car and getting a new loan shouldn't prevent her from getting approved or impact her rates.

 

[DLgal]

The only thing she should not do is get a new car loan AFTER she has started the process of underwriting the loan. That is a big no no. You cannot take on new debts once your DTI ratio has been calculated and used to approve a loan amount.

I would suggest she go through the mortgage process and THEN after she has bought the house and has a real handle on her actual monthly expenses after a few months of utilities and such, upgrade the car.

 

[firefly_ris]

Maybe in the meantime get a nice set of snow tires for the winter.

 

[havaneselover]

The only thing she should not do is get a new car loan AFTER she has started the process of underwriting the loan. That is a big no no. You cannot take on new debts once your DTI ratio has been calculated and used to approve a loan amount.

I would suggest she go through the mortgage process and THEN after she has bought the house and has a real handle on her actual monthly expenses after a few months of utilities and such, upgrade the car.

She's not wanting to upgrade the car. She is thinking about a loan for about the same amount.

 

[DLgal]

She's not wanting to upgrade the car. She is thinking about a loan for about the same amount.

Didn't you say she wanted a better car to handle the winters? That is upgrading. What she has isn't good enough and she needs something better.

When is her current loan scheduled to be paid off? How much is the car she wants to switch to?

 

[havaneselover]

Didn't you say she wanted a better car to handle the winters? That is upgrading. What she has isn't good enough and she needs something better.

When is her current loan scheduled to be paid off? How much is the car she wants to switch to?

No clue but OP says: she’s afraid if she trades in now for a diff vehicle (about the same loan amount)

And maybe she's trading in a $12K corolla for a $12k rav 4. It is a bit unclear. But with her credit score and age she seems to be very responsible. If she wants a different used car I'd go for it. It won't impact her ability to get a loan since the current loan has too much time left not to be considered.

 

[RamblingMad]

Changing jobs or moving will have a bigger impact. Time on job is a credit metric. Number of years at residence is also one. I wouldn't worry about swapping cars. The metric to look for there is debt to income. on a monthly basis. If she isn't increasing her debt, she should be fine. The worse thing is the credit pull, but as long as you keep these down to 1-2 a year, that shouldn't be a problem.

 

[Orion Nebula]

I 100% agree with the "it's fine" opinion. But if it were me I would just hold off until things get through underwriting. Maybe I am misreading but I don't see the car situation as being an issue right now, as in it's running fine etc.

 

[havaneselover]

I 100% agree with the "it's fine" opinion. But if it were me I would just hold off until things get through underwriting. Maybe I am misreading but I don't see the car situation as being an issue right now, as in it's running fine etc.

I agree with this. Somehow I totally missed the "within the next few months." I'd just hold off too because hopefully we are done with snow for now.

 

[tvguy]

No advice, some credit stuff doesn't make sense to me.
My daughter couldn't get a mortgage because she had no credit history, but had the income and a 20% down payment.
Bank advised she buy a car (that she didn't need) and keep the car loan at least 8 months to establish credit. She did that, paid off the car in 8 months, and was then an automatic approval on the mortgage.

 

[barkley]

teacher you say? i'm guessing she has a connection or eligibility to a credit union. even if she's not a current member she could call their loan department and explain the situation. they can give her the most accurate advise on current trends in pre-approvals. i belong to a teacher's credit union and have found that their loan department staff are so helpful with providing information without trying to push/sell a product an individual is not ready for (though on our last car purchase their rates couldn't be beat and they gave a discount for auto pay. their home loan process and rates are also the best in our region).

 

[elgerber]

I process mortgage loans for a living. We have people buy cars all the time, in the middle of the process. It's more paperwork for them to get us, but as long as the credit is good, and the payment doesn't raise the ratios too high to qualify it's fine. If you are a few months out, it's fine to do it now. Just keep all the paperwork on the new car and the proof that the old car was traded in and paid off with the new car transaction.

 

[RamblingMad]

No advice, some credit stuff doesn't make sense to me.
My daughter couldn't get a mortgage because she had no credit history, but had the income and a 20% down payment.
Bank advised she buy a car (that she didn't need) and keep the car loan at least 8 months to establish credit. She did that, paid off the car in 8 months, and was then an automatic approval on the mortgage.

Think of credit this way:

* no credit
* thin credit
* thick credit

The worse performers are the youngest and the oldest. The best are around 40-60 years old.

 

[SandyinMonterey]

I was always told no major purchases, no major withdraws or deposits in bank account when buying a house and trying to get a mortgage.

 

[elgerber]

I was always told no major purchases, no major withdraws or deposits in bank account when buying a house and trying to get a mortgage.

Yes this is the general advice, but those items are not deal killers, just more paperwork (unless your credit stinks and you are already maxed out on your ratios). In the last few months I have done files with surprise car, boat and even another home, purchased in the middle of our transaction.

 

[Tina in FD]

So she was looking at a 2019 Mazda CX-3 with low miles that is $17500. If they would give her a decent trade of $11-$12k then best we can figure her payment would stay about the same, just be for a few years longer (she has just less than 3 years left to pay on her car now, this would push her loan back to 5 years). I think she should drive her Toyota until at least October or November and put the travel miles on it before trading. she doesn’t want to screw up any of the process because the market is moving very quickly here.

 

[kuhltiffany]

No need to worry about the car for another 6 months. Concentrate on the mortgage now...can she buy a house close to work so it's not a driving issue?

 

[theotherlostprincess]

I’d say wait to close on the house and then get the car after. My mortgage company questioned my credit card I opened at a store and my credit check done by bge both of which were about 2-3 months before I applied the mortgage.

 

[barkley]

she also might want to look at what any new (to her) car would do to her insurance rates as well as what potential areas of home purchase can do to her rates (we've lived in areas where a matter of miles resulted in higher auto insurance premiums). it may not be a major factor as far as the loan but increased costs impact your budgeting.