Paying down Car Loan to Improve DTI

[Jennifer Connolly]

Hey folks,

I'm planning on getting a preapproval soon, but I have a DTI issue I need to resolve.

I pay $380 per month for my car and have 16 months of payments left on it. Unfortunately, with my low income my current DTI does not give me much purchasing power. On the bright side, I should qualify for both down payment assistance and the Masshousing loan due to my income and first time buyer status, but I still need to get my DTI to be more manageable so I can afford to buy more than a parking space in MA.

A lender I spoke to said that if I pay it down so I have less than nine payments remaining they "may" not factor it into DTI if I have enough liquid funds in the bank to show that I could pay it off and also have enough for a down payment. It's the "may" and the "and" that's getting me LOL

She recommended I do this and then wait for it to hit my credit report before applying for preapproval.

At this point, I could pay the whole thing off with just under $6k, but that would leave me with $5K for a down payment, which would probably be fine assuming a get another $3-4K in down payment assistance, but I hate to assume.

Alternatively, I was thinking I could pay $4K off now, which would leave me with around five payments left just to keep the trade line open a bit longer and probably by the time I get all my ducks in a row and get to closing on a property I might only have one or two payments left on it anyway.

What do you think?