‘The Big Move’ is a MarketWatch column looking at the ins and outs of real estate, from navigating the search for a new home to applying for a mortgage.
Do you have a question about buying or selling a home? Do you want to know where your next move should be? Email Aarthi Swaminathan at [email protected].
Dear Big Move,
I’m in the middle of applying for a mortgage.
My wife needs to turn in her leased car and lease a new one during the underwriting process on the mortgage.
Due to my low debt-to-income ratio and higher credit score, as well as my wife’s income from her business, we decided it would be best — and easier — to put the mortgage under my name, but put the title under both of our names.
My question is, would leasing a car hurt our underwriting process, and hence our mortgage application?
Being Careful
This week’s Big Move question first appeared on Reddit.
Dear Careful,
It’s always good practice to take a pause on spending big — like leasing or buying a car — or taking on debt when you’re in the middle of applying for a mortgage. The process is detailed, and lenders may not want to see you taking on more debt while you are applying for what is arguably the biggest loan you will take on in your life.
However, the simple answer to your question on the new leased car is, no — your wife’s actions will not hurt your mortgage application. But if your wife was on the mortgage, and you or she decided to take out another large loan, that could hurt your credit score, and ultimately impact the mortgage rate offered by your lender.
Bottom line: It would only impact your mortgage application if you were to cosign for the car lease, said Melissa Cohn, regional vice president at William Raveis Mortgage. So it actually makes sense: you put your name on the mortgage, and your wife puts her name on the car loan.
But remember that if your name is on the loan, you and you alone are responsible for paying off the loan. But your wife still owns 50% of the property. In general, it’s better — in the event you should divorce — that you are both on the deed and the loan. (MarketWatch’s Moneyist columnist has dealt with far too many stories about this exact dilemma.)
Other red flags when applying for a mortgage
Here are some of the other things you should probably not do when you are in the middle of applying for a mortgage. Avoid opening new credit cards, or taking on new debt, since that could not only affect your credit score, but also your debt-to-income ratio.
Do not cosign on another person’s debt when you are applying for a mortgage as that will obligate you to pay for their loan, resulting in a higher debt-to-income (DTI) ratio. This could be as simple as cosigning for a child’s student-loan application.
Another easy mistake: don’t close any credit cards or accounts during the mortgage-application process, even if you finally want to get rid of the seldom-used joint credit card your mom gave you in college. That account will show a long credit history, and closing it may hurt your score. Wait until you’ve closed on the house.
Moving jobs or starting a new business when you’re in the midst of the mortgage process could raise a red flag for the lender. Lenders like to see a stable source of income, and may take note of any periods of unemployment. Check with the lender before you make any career moves, as they have different thresholds for such changes.
For now it sounds like you’re in good shape overall. Taking into account all of the caveats I’ve just pointed out, I wish you all the best in your new home. I hope you create many happy memories there.
Related: America’s No. 1 emerging real-estate market is in Kansas. ‘Life is easy over here.’
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