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Does it make sense to refinance car loan and consolidate student loans before home purchase?

I'm planning to purchase a home, and have 15-20% saved up for the homes within my purchase range (150-200k). However, I also have about 45k in student loans and 11k of car loans left. The car loan has 7.99% fixed interest, the student loans have a variable interest that dropped to something like 3.5% due to the economy. The student loans also have my mom as a cosigner, and she wants me to refinance them to get her name off. My question is "should I refinance my student or car or both loans to get better terms before applying for a home loan, and how long should I wait after refinancing before applying for a home loan?" I know large purchases hurt you when getting a home loan, but I heard from a coworker that refinancing can actually help since it closes a current loan, even though it opens a new one.
  • June 10 2009 - Moorestown Township
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Answers (3)

Profile picture for Justin Kennedy
one thing to keep in mind, how will closing multipule accounts, recently open tradelines, and recent inquiries effect your credit score. Fannie mae and Freddie Mac have raised thier loan level pricing adjustments for fico scores over the past 6 months. for example with 20% downpayment conventional loan, the differance between a 660-679 and 680-699 credit score is 1% in fee ($1,000 for every 100,000 in loan amount or .25%-.375% in higher rate). not consider, if you credit score falls below MI limits you may have to look towards goverment loans such as FHA.

as mentioned below, if you need reduce your payments to qualify, you may need to preceed with the transfer of debt and run the risk.
  • August 28 2009
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Agree with Robert.  Speak to a loan professional first.  Then proceed as advised.  I would not recommend anyone make these kinds of credit changes before examining the situation from a mortgage lending point of view.  If your mom wants off of the student loans, it's probably going to be best to wait until after you get the house and then handle that piece - assuming you qualify as is.

Good luck.
  • August 28 2009
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It's not about getting better terms, it's about qualifying or not. It all depends on your debt to income ratio. I highly suggest getting pre-approved for a loan now. Even if you are as far as 6 months out from buying,..a Lender will be able to tell you where you stand and what you need to do to get qualified.

If the Lender tells you that your debt load is too high, then you would go the route of refinancing to lower your debts.

See what I mean?
  • August 25 2009
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