WWYD? $$ related, not kid

[Saudade]

We are going to be moving sometime in the new year. We sold our house, have a bit of a down-payment, and a shit ton of school loans. We also have a small car loan (5000). 

At this point we are unsure of what to do. We've identified two options and aren't sure which one will put us in the best position come Jan/Feb for buying a new house.

Option 1: Continue paying monthly payment on car. Adding all extra $$ to the down-payment fund.

Option 2: Pay off car loan from down-payment fund. Add all extra $$ to the down-payment fund. 

What would you do? 

Thank you!

[redheadk]

Option 2 so long as paying off the car loan will leave you with enough money for a downpayment (so the extra $$ will be a bonus but not strictly necessary to get into a house).

[Saudade]

Oct 19, 2014 10:00:08 GMT -5 redheadk said:

Option 2 so long as paying off the car loan will leave you with enough money for a downpayment (so the extra $$ will be a bonus but not strictly necessary to get into a house).

Well...I have no idea how much of a DP will be sufficient. We don't know where we are moving so I have no idea what we'll need. I think we'll have between 10-20%, depending on location and house. 

[redheadk]

Oct 19, 2014 10:01:48 GMT -5 Saudade said:

Oct 19, 2014 10:00:08 GMT -5 redheadk said:

Option 2 so long as paying off the car loan will leave you with enough money for a downpayment (so the extra $$ will be a bonus but not strictly necessary to get into a house).

Well...I have no idea how much of a DP will be sufficient. We don't know where we are moving so I have no idea what we'll need. I think we'll have between 10-20%, depending on location and house. 

Oh, that's tough. Sorry

I'd still probably pay the car off if you think you'll still have enough of a downpayment.

[whitepicketfence]

I'd pay off the car loan and then apply what you would have been paying on the car to the DP fund each month.

[Saudade]

Oct 19, 2014 10:07:43 GMT -5 @vicmo said:

What's the interest rate on the loan? It doesn't really make sense to keep paying interest on a loan and holding a bunch of cash in the bank earning essentially nothing.

The car rate is like 1%? I can't remember exactly.

The account is at 0.75%. 

All of my (variable, PRN) paychecks go into the DP fund. 

[Saudade]

Oct 19, 2014 10:23:53 GMT -5 @vicmo said:

Oct 19, 2014 10:13:40 GMT -5 Saudade said:

The car rate is like 1%? I can't remember exactly.

The account is at 0.75%. 

All of my (variable, PRN) paychecks go into the DP fund. 

If they're about the same rate, there's not really any benefit to paying it off IMO. On the other hand, if you want it gone, that's fine too.

Do you think, when looking at debt amounts, it will make much of a difference in loan approval? It's insignificant compared to amounts of student loans, but it's still debt. FTR, we have no credit card debt or mortgage currently.

[stacyb1983]

I'd pay off the car. Reducing your debt to income ratio can help you get a better mortgage rate which would save money over the course of the loan.

[anna7602]

You don't know how quickly you might have to come up with DP money. What if a house you want comes up right away? I'd rather have the money sitting in the bank at that point than have paid off the car. I would be more concerned about being short the required cash for a DP than of a very small loan Impacting the interest rate. I don't know if things have changed since the last time we bought a home, but our rate was based on our credit score, which is driven by your ament history and ratio of usage to open lines of credit. In our case, a $5K loan wouldn't have negatively impacted our score. It's hard to know at what point a loan like that would, but it sounds like you don't have other debt.

[Deleted]

I really don't think either will matter much unless your DP can be pushed over an important percentage --5>, 20%, whatever it is that you know will put you in the best position with your bank.

[doric]

I would continue saving as much as possible for your downpayment. If you find a house you like and have more than enough saved, you will have a good cushion for absorbing all the other things that go along with buying a house (eg, survey, inspection, repairs that may be needed within a few months of moving). Also, as someone else said, if you find a home you like immediately, you want to have enough funds to purchase it. If you are still in a comfortable position after buying a place, consider paying off your car loan then.

[simpsongal]

I would hoard the cash (whether for the down payment or emergency)- we're talking a few month here and I think it's wiser to keep your cash liquid. You can always throw extra money at the car or SLs but you can't get it back once it's gone.

Homebuying is an expensive prospect - there are always unexpected expenses.

[julygal]

At least for us, the small car loan we had made no difference in our mortgage rate (we asked). Our car loan was so small that they knew we could pay it off, and all paying it off did was take away the cash reserve. They liked seeing a cash reserve more. I would hoard the cash and tackle car loan and student loans after the home purchase, move, and settling into the new area/expenses.

[sjh722]

I would save it until you know if you need it for down payment, cash reserves, paying off something to improve your debt ratio, etc.

[MadamePresident]

I'd pay off the car, but I'm anti debt.

[turtlegirl]

I would pay off the car. But more from the perspective that I'd want the least amount of monthly bills when I moved into the new place.

Moving and adjusting to a new mortgage and bills can be expensive and the less monthly bills I had more debt the happier I would be.