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A friend is trying to get a mortgage and the debt to income ratio
is too high because of a car payment. He is only a year away from paying off the car loan. Can a parent pay it off to change the debt to income
ratio and then let him repay the car loan amount to them .
A friend is trying to get a mortgage and the debt to income ratio
is too high because of a car payment. He is only a year away from paying off the car loan. Can a parent pay it off to change the debt to income
ratio and then let him repay the car loan amount to them .
This happened to me 15 years ago when I was a first time buyer. I figured I'd sell the car, but my mortgage guy told me I didn't have to do that. He had me go to the bank and renegotiate the terms of the car loan to make it appear it would be paid off in 6 months. That way it would not count against my debt ratio. When I told him there was no way I could handle the payments (they more than doubled), he said not to worry, as soon as I settled I could reverse the loan back to the original terms. I was skeptical, but it worked. I had to find a house in a hurry, though, as I couldn't keep those payments up for long. Legal? Who knows. But it got me my house.
Any installment loan that has less than 10 payments left is not calculated in the DTI, so they just have to pay it down to 9 remaining payments. This is done off the credit report- if monthly payment is $500 balance must be below $5000. It can be paid down and then have the LO do what we call a credit supplement which upates the information for that debt to show the lower balance. If he were to borrow money to pay down it would have to be added in to his total debt and DTI accordingly, but the reality is he only needs 3 payments so maybe an early birthday gift?
This happened to me 15 years ago when I was a first time buyer. I figured I'd sell the car, but my mortgage guy told me I didn't have to do that. He had me go to the bank and renegotiate the terms of the car loan to make it appear it would be paid off in 6 months. That way it would not count against my debt ratio. When I told him there was no way I could handle the payments (they more than doubled), he said not to worry, as soon as I settled I could reverse the loan back to the original terms. I was skeptical, but it worked. I had to find a house in a hurry, though, as I couldn't keep those payments up for long. Legal? Who knows. But it got me my house.
These are the kind of "mortgage guys" that contributed to economic/housing mess we are in today. Anyone who would go along with this "slight of hand" is just as guilty.
These are the kind of "mortgage guys" that contributed to economic/housing mess we are in today. Anyone who would go along with this "slight of hand" is just as guilty.
Maybe, but I knew I could afford the house (my mortgage payment was less than my rent, and that was before allowing for the tax benefits of home ownership), and I was a bit naive about everything at that time. As it happened, I got my house, have never been late with a mortgage payment, and now enjoy the stability and advantages of home-ownership that I otherwise would not have. As a young single mother, with no real assets or family that could help, I have gone from nothing to having a little bit of wealth, and I could not have done this living from paycheck to paycheck as a renter. I don't necessarily think that helping regular people buy regular houses is the problem. The problem is allowing people to qualify for mortgages way beyond their means, where greedy mortgage brokers made millions and buyers who didn't know any better ended up with mortgages they could not afford.
Maybe, but I knew I could afford the house (my mortgage payment was less than my rent, and that was before allowing for the tax benefits of home ownership), and I was a bit naive about everything at that time. As it happened, I got my house, have never been late with a mortgage payment, and now enjoy the stability and advantages of home-ownership that I otherwise would not have. As a young single mother, with no real assets or family that could help, I have gone from nothing to having a little bit of wealth, and I could not have done this living from paycheck to paycheck as a renter. I don't necessarily think that helping regular people buy regular houses is the problem. The problem is allowing people to qualify for mortgages way beyond their means, where greedy mortgage brokers made millions and buyers who didn't know any better ended up with mortgages they could not afford.
Let me see if I get this right. It's okay to bend the rules, or break the rules, or maybe even commit fraud, but as long as it benefits the person financially then it needs to be overlooked. What a concept!?
Let me see if I get this right. It's okay to bend the rules, or break the rules, or maybe even commit fraud, but as long as it benefits the person financially then it needs to be overlooked. What a concept!?
Honestly, I don't know if this was breaking any rules or not. I thought that was why I needed to have professionals involved in the whole real estate buying process -they know the rules and I don't. I didn't think this up myself - remember, I was ready to sell the car in order to qualify. In fact, when they came back and said there was a problem with the debt-ratio (and the only debt I had at the time was the car and a loan with my credit union - I never used credit cards), I was disappointed but figured oh well, guess I can't buy a house right now. But they told me that was not the case. I had never bought a house before, and so I just did what my agent and the mortgage broker told me I had to do to qualify for a mortgage that I knew I could afford. Is it any different from people who had family members "give" them money for the down payment?
You did not commit fraud and I don't believe you did anything unethical. I also think that some people really need to get a grip! You renegotiated the auto loan. You are allowed to this! You paid the higher auto payments, as required by the renegotiated debt, until you were able to again renegotiate. If you were unable to renegotiate the second time - you would have had to sell your car and/or take a second job, etc. You took a calculated risk and it paid off.
This is different than those family members who "gift" the down payment with the expectation that it will be repaid. That IS fraud.
This is different than those family members who "gift" the down payment with the expectation that it will be repaid. That IS fraud.
Why would the mortgage company care about what
a family works out between them . What if they agree to have
the one receiving the "gift" work it off. What if they defer the payments for 5 years. Does that mean paying off the car is fraud??
Why would the mortgage company care about what
a family works out between them . What if they agree to have
the one receiving the "gift" work it off. What if they defer the payments for 5 years. Does that mean paying off the car is fraud??
Because a "gift" means it does not have to be repaid. A buyer may receive a cash gift from family to put toward the house, but they must document that it is truly a gift and there is no obligation to pay it back. The fraud comes in when the buyer and the person providing the funds present documentation to the bank verifying that it's a gift, but in reality it's a loan that has to be paid back.
As far as the car payment thing, I would hate to think that this would prevent your friend from getting the loan. I made my first post as I was in a similar situation, and was able to work it out. Whether it was strictly by the book, or a little bit of a card trick, the end result is I bought the house, paid off the car, and everyone got their money. I see this as totally different than the things that were taking place that led to the current mortgage crisis (no document loans where people lied about their income, variable rate loans that went sky-high, interest only loans, etc.)
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