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If you have a car lease of say $400 that is counting toward your DTI and have 18 payments left, can you make a $7200 payment ($400x18 months) and lower your DTI?
I had one loan officer say that yes, that is possible. Then I've had another that says no, car leases are not treated that way because the UW figures you'll just get into another payment after the lease is up..
That to me seems like an unfair assumption. While you could get into another payment, that payment could be much less (say $200/month) or you could just buy an older car cash down if you're tight on your budget.
I never heard of a lender accepting that. If u were financing the car and got it under 12 to 8 payments left then they could not include it in your dti.
Depends. Beyond all this bank talk, what does your lease say? Many leases dont allow for early payoff. If you payoff, you might have to make a decision to turn it in, or buy the car immediately. Really depends on how your lease is worded.
Look at it this way. If you are making payments on a financed car, and you pay it off, you no longer have a car payment, but you still have the car to drive. If you pay off the contracted portion of your lease, in a few months you will either have to get a new lease, or buy a new/used car, either way you will have upcoming expenses.
Personally, I don't think prepaying off a lease SHOULD help with DTI.
Look at it this way. If you are making payments on a financed car, and you pay it off, you no longer have a car payment, but you still have the car to drive. If you pay off the contracted portion of your lease, in a few months you will either have to get a new lease, or buy a new/used car, either way you will have upcoming expenses.
Personally, I don't think prepaying off a lease SHOULD help with DTI.
I don't really agree, I think it depends on the situation.
When the lease ends, you have the option of either turning it in and not having any payment, or buying the same car, either cash or finance, or turning in the car and either buying another car with cash, or financing/leasing another car, at a lower payment.
Point is, the UW can't predict what you will do. In our situation, we actually could get by with one car no problem, or could save up to purchase the car cash down at the end of the lease in 18 months.
I don't really agree, I think it depends on the situation.
When the lease ends, you have the option of either turning it in and not having any payment, or buying the same car, either cash or finance, or turning in the car and either buying another car with cash, or financing/leasing another car, at a lower payment.
Point is, the UW can't predict what you will do. In our situation, we actually could get by with one car no problem, or could save up to purchase the car cash down at the end of the lease in 18 months.
You are exactly right, the UW can't predict, therefore, they have to assume the worst case, which is that because you have two cars now, you will continue to need 2 cars, and so at the end of a lease, you will have to replace it. Whether you save up and pay cash, or get a loan and make payments, it either reduces your available cash now or available cash later, which they would consider about the same.
You are looking at this as if the lenders go for best case scenerio and are looking for a reason to approve you. That isn't today's real world. The lenders are looking for any reason they can find to reject you. If your DTI is too high, and you pay off a loan or two to bring it in line, they may decide that then your cash reserves are too low, or something. Lenders will tell you that isn't what is happening, but anyone else who deals with lenders will likely agree that is what it feels like.
I never heard of a lender accepting that. If u were financing the car and got it under 12 to 8 payments left then they could not include it in your dti.
It used to be that way -
The actual rule for most agencies is it may be excluded if it's within their cut-off for installment debt, if the payment can be easily accommodated. So, if it's $129 and that's their average beer tab (or whatever) for the month, yeah, the UW will allow the debt to be excluded. However, if it's $400, if they don't have the excess cash to cover payments, it's counted. If it impedes their cashflow to live, it's counted. And if even if it's $300, if it's >5% of their monthly payment, it will be counted.
I don't really agree, I think it depends on the situation.
When the lease ends, you have the option of either turning it in and not having any payment, or buying the same car, either cash or finance, or turning in the car and either buying another car with cash, or financing/leasing another car, at a lower payment.
Point is, the UW can't predict what you will do. In our situation, we actually could get by with one car no problem, or could save up to purchase the car cash down at the end of the lease in 18 months.
I have yet to see an underwriter buy into excluding the lease unless you can really make some sense of the picture. Paying off a lease to qualify does not scream "well qualified buyers" - actually, just the opposite.
I totally get someone going down from 2 cars to 1, my son just did it and I'm driving the one he ditched (better gas mileage than my SUV). But he lives in the city (Wash DC) and it's cheaper for him to leave it with me than pay for parking and insurance. And he didn't do it to qualify, but we could document I've had the car for a year. But it's HIGHLY suspect if it occurs the month before you want to buy a home.
If I were working with someone in this situation and it did make the difference between getting a home and not, I'd tell them they need to get out of the lease, turn in the car and either 1) prove they could live with 1 car for at least 6 months before entering into a contract, or 2) buy another car with cash.
People need to realize our world had radically changed. The definitions of Qualified Mortgages just came out yesterday, these are mortgages that are not subject to the lender holding excess reserves in the event the loan goes bad........having a mortgage that isn't a QM is going to get insanely expensive.......but what also came out with this ruling is the ability of the consumer to sue the lender for giving them any mortgage they are not qualified for - so once people start to digest this little nugget, it will be quite apparent the bad guy is no longer the lender, but the regulators. So.........if the consumer can sue the lender because the consumer decides they no longer want to pay their bills, you better believe, those just paying off a lease or loan to qualify aren't going to make the cut.
I predict we are going to have to get to a point where the consumer is totally outraged, expresses that outrage to the point to move their elected officials. And until that happens, lending will continue to contract.
Sometimes there is the hard truth math, and then there is common sense.
In this case , it works in reverse unfortunately. If this was a car loan, there is no doubt your DTI would be lowered. In fact, if its within 3 payments (used to be 10 way back when) of being finished, the DTI was lowered.
But with a lease, the difference is you no longer have the car either. So while the math says your DTI is lower, the underwriter says you will most likely have to get another car, so the DTI stays as though you are signing another lease.
The only way to beat this is to pay off the lease, and sign a LOWER lease.
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