Author Topic: Auto loan payoff to get mortgage - Need Advice! (Read 5571 times)

karatemike · « **on:** April 09, 2012, 05:56:57 PM »

Ok, so here's the crazy situation any advice is appreciated.
I am buying a new house. I got approved for the loan with one contingency, which is that I pay off my SUV. I owe $23,500 on my SUV and I hate to use a huge chunk of my savings to pay it off.
I have figured out a solution, but it's a little complicated and my dad is less than thrilled about it.

My dad is going to get an auto loan in his name only and buy the truck from me.
Being that he's my dad, I'm going to sell him the truck for $1. (I called New Jersey DMV, they said it's fine)
I am going to close on my mortgage the end of April.
In early May, I am going to either 1. Reapply with my Dad to refinance the auto loan and add myself so that I can re-register the truck in my name.
or 2. Have him sell the truck back to me with a loan I get on my own.

Before I got through all this, I was wondering if anyone had a better solution. Keep in mind, I need this truck paid off or out of my name in a week or two to get the mortgage closed, but this is my SUV so I want to get it back on my name so I can register and insure it.
Thank you for any advice.
Mike

meshugener · « **Reply #1 on:** April 09, 2012, 09:50:55 PM »

Why don't you leave it on your dad's name? Don't you trust him?

TC610 · « **Reply #2 on:** April 09, 2012, 10:06:47 PM »

Is that something you really want to do? As you shift the auto loan back and forth, both of you may be facing extra loan origination fees. Your loan may also have other fees associated with it for closing the auto loan early. Same thing for when your dad closes his loan. If you have a favorable rate on the loan now, there's no guarantee you'll get that same favorable rate when you reapply for your auto loan given that you have new hard pulls on your credit as well as the new mortgage. Your idea may cost you hundreds (or thousands) in fees and higher interest costs over the life of the new loan.

Did you lock yourself in to one lender, or have you tried shopping around for multiple lenders to see if there is one that will give you a loan without that contingency?

karatemike · « **Reply #3 on:** April 10, 2012, 08:14:31 AM »

Quote from: meshugener on April 09, 2012, 09:50:55 PM

Why don't you leave it on your dad's name? Don't you trust him?

Yes of course, but if it's in only his name and we dont live in the same house I can't insure it, he would have to.

karatemike · « **Reply #4 on:** April 10, 2012, 08:16:18 AM »

Quote from: TC610 on April 09, 2012, 10:06:47 PM

Is that something you really want to do? As you shift the auto loan back and forth, both of you may be facing extra loan origination fees. Your loan may also have other fees associated with it for closing the auto loan early. Same thing for when your dad closes his loan. If you have a favorable rate on the loan now, there's no guarantee you'll get that same favorable rate when you reapply for your auto loan given that you have new hard pulls on your credit as well as the new mortgage. Your idea may cost you hundreds (or thousands) in fees and higher interest costs over the life of the new loan.

Did you lock yourself in to one lender, or have you tried shopping around for multiple lenders to see if there is one that will give you a loan without that contingency?

I agree about the fees and rate but the situation remains the same for me, which is that I need to get the auto loan off my name so I can get the mortgage. This has been a huge head ache for me trying to make this work.

meshugener · « **Reply #5 on:** April 10, 2012, 08:54:04 AM »

And whats the problem he should insure it?

3ZeroT · « **Reply #6 on:** April 10, 2012, 09:08:53 AM »

I did something similar to move my car loan to my wife's credit report. The sales tax would be the real killer, but sounds like you have that worked out with your particular state with this $1 transaction being allowed. In my case there was no sales tax because the car went to my spouse. If you have excellent credit the good lenders won't be charging you any significant fees on these loans. Also some lenders will do a cash out finance on your car - i.e. you could pay off the loan without transferring to your dad, then after you get the mortgage, take a loan out on the paid off truck again.

Saver2000 · « **Reply #7 on:** April 10, 2012, 09:58:41 AM »

Quote from: 3ZeroT on April 10, 2012, 09:08:53 AM

I did something similar to move my car loan to my wife's credit report. The sales tax would be the real killer, but sounds like you have that worked out with your particular state with this $1 transaction being allowed.

+1
Another option in NJ to avoid sales tax is to gift the car to the other person.

@karatemike
Is possible for your dad to take over your current auto loan? I think there is some sort of process to transfer ownership of a loan.

The benefit of transferring the current loan is that you will save on loan fees, and also you will save on car sales fees (title $60, registration $46.50) .

karatemike · « **Reply #8 on:** April 10, 2012, 11:29:12 AM »

Quote from: meshugener on April 10, 2012, 08:54:04 AM

And whats the problem he should insure it?

He doesnt want to, it's my wife's car.....need I say more?

karatemike · « **Reply #9 on:** April 10, 2012, 11:31:13 AM »

Thank you all for the good advice, please keep it coming!
Right now, I'm going to try and have my wife removed from the mortgage loan application, then I have her refinance the car with a co-signer. I'm waiting on the mortgage underwriter to see if this would help.

Name Changed · « **Reply #10 on:** April 10, 2012, 12:07:10 PM »

Why don't you pay it off and then sell it to your wife and take out the auto loan under your wifes name.

From your original post, it sounded like you do have enough money in savings to pay off the car, but you don't want to.

I am not sure if this will actually work, but...

Also I am not sure - but if you pay it off now, are you able to refinance it under your name?

1 more thing - for auto loans check out Penfed.org, they have really good rates

karatemike · « **Reply #11 on:** April 10, 2012, 12:11:42 PM »

Quote from: Name Changed on April 10, 2012, 12:07:10 PM

Why don't you pay it off and then sell it to your wife and take out the auto loan under your wifes name.

From your original post, it sounded like you do have enough money in savings to pay off the car, but you don't want to.

I am not sure if this will actually work, but...

Also I am not sure - but if you pay it off now, are you able to refinance it under your name?

1 more thing - for auto loans check out Penfed.org, they have really good rates

Thank you for the advice. If I pay it off, I can not refinance it according to the banks because if there's no loan on it it's not a refinance, and if I own the car, it's considered a cash out refinance which banks dont do.

ichmein · « **Reply #12 on:** April 10, 2012, 12:27:49 PM »

Just wondering, I am leasing a car, and at the end of the lease I plan to exercise the option to purchase it. I also plan to buy a house in a couple of years, and I do not want what happened to karatemike happening to me as well. Is this a common provision that banks require? Maybe it will be less of an issue for me since the monthly payment is a small fraction of my monthly income.

Name Changed · « **Reply #13 on:** April 10, 2012, 12:30:15 PM »

Quote from: karatemike on April 10, 2012, 12:11:42 PM

Thank you for the advice. If I pay it off, I can not refinance it according to the banks because if there's no loan on it it's not a refinance, and if I own the car, it's considered a cash out refinance which banks dont do.

So what about if you sell it to your wife? Will she be able to finance it after you pay it off?

3ZeroT · « **Reply #14 on:** April 10, 2012, 02:14:22 PM »

Quote from: ichmein on April 10, 2012, 12:27:49 PM

Just wondering, I am leasing a car, and at the end of the lease I plan to exercise the option to purchase it. I also plan to buy a house in a couple of years, and I do not want what happened to karatemike happening to me as well. Is this a common provision that banks require? Maybe it will be less of an issue for me since the monthly payment is a small fraction of my monthly income.

Right, it comes into play with mortgage lenders if that car payment is consuming a big % of your gross income. Lenders have their own guidelines but I recall the traditional conservative example is 28/36 (lenders don't like to see more than 28 % of your gross monthly income for the housing payment, and 36% for total debt payments including auto loans / credit cards).

karatemike · « **Reply #15 on:** April 10, 2012, 02:31:24 PM »

Quote from: Name Changed on April 10, 2012, 12:30:15 PM

So what about if you sell it to your wife? Will she be able to finance it after you pay it off?

Nope, once it's paid off you or anyone else can not refinance it.
You can do what is called a title loan, which is very high interest and from what I read, not a great idea.

karatemike · « **Reply #16 on:** April 10, 2012, 02:36:07 PM »

Quote from: ichmein on April 10, 2012, 12:27:49 PM

Just wondering, I am leasing a car, and at the end of the lease I plan to exercise the option to purchase it. I also plan to buy a house in a couple of years, and I do not want what happened to karatemike happening to me as well. Is this a common provision that banks require? Maybe it will be less of an issue for me since the monthly payment is a small fraction of my monthly income.

The issue I am having is because my wife (a model) has not been working steadly to for the past 2 years, (I have a 16 month old son and 27 month old son) so even though she gets paid quite a bit, ($225 an hour) it's not steady work for 2 years, so MY debt to income is high with the new house and our existing auto loan.

Aaaron · « **Reply #17 on:** April 10, 2012, 06:30:19 PM »

Would your dad co-sign the loan? With his income added you probably wouldn't have to payoff the car.

karatemike · « **Reply #18 on:** April 10, 2012, 09:34:41 PM »

Although my Dad would happily cosign my mortgage, cosigners are not permitted on the loan unless it's a FHA loan or the cosigner lives in the house....

ichmein · « **Reply #19 on:** April 11, 2012, 10:28:50 AM »

Quote from: 3ZeroT on April 10, 2012, 02:14:22 PM

Right, it comes into play with mortgage lenders if that car payment is consuming a big % of your gross income. Lenders have their own guidelines but I recall the traditional conservative example is 28/36 (lenders don't like to see more than 28 % of your gross monthly income for the housing payment, and 36% for total debt payments including auto loans / credit cards).

So that 36% would include your monthly credit card statement? What if you spend the money on a debit card instead of a credit card? I don't see how most people can spend less than 36% of their monthly income on their mortgage and credit card bill.
I guess student loan debt would be included in that 36% as well?