TheGoodBits Posted September 28, 2012 Share Posted September 28, 2012 Tailgate advice requested. I'm having a hell of a time finding a firm answer online. I'm just going to lay out my hypothetical (and realistic) example. Is debt to income calculated using monthly debt expenses, or by using your current outstanding balance? I've read monthly expenses online, but the customer service rep at the bank who is helping us kept asking for the current balance. Assuming they are looking for current balance, how does a lease affect that? I can pay $200/mo for a new $20k car (lease) or I can pay $200/mo for a used $9k car (loan) With the purchase, obviously my outstanding balance is $9k. But with the lease, is my outstanding balance calculated by the value of the car, or is it (IMO rightfully) calculated by the total of my outstanding payments through the life of the lease? The example here would be $200/mo for 36 months equals an outstanding balance of $7,200. Or is it still calculated based on the value of the car? Link to comment Share on other sites More sharing options...
Dictator Posted September 28, 2012 Share Posted September 28, 2012 Debt to income is typically calculated as a monthly figure. total net monthly income vs. total net debt payment every month. with the lease your outstanding balance should be the total outstanding lease payment. Value of the car shouldn't be a factor. but it's not as simple as mo. payment * no. of months left. Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 Debt to income is typically calculated as a monthly figure. total net monthly income vs. total net debt payment every month.with the lease your outstanding balance should be the total outstanding lease payment. Value of the car shouldn't be a factor. That's what I'm thinking- so short term if I'm trying to keep my debt to income low and don't want to be driving a beater, a lease would be a good option for me? Link to comment Share on other sites More sharing options...
Koolblue13 Posted September 28, 2012 Share Posted September 28, 2012 I don't know the details of finances, but the $9k car will need repairs that a tricky warranty won't cover. The $20k car will just be a basic shell, but might last, might not, but I wouldn't think it your responsibility. I know with my Dads experience with a lease, he has usually had some kind of problem when returning it. Also, with a $9k car, it would seem like you could get more car for the buck, but bells and whistles are what breaks first. That $9k range has always scared me. I would either go new and suck up the higher payment or go cheaper, hope for the best and save the pennies for the next car. Don't know if any of this is relevant or appreciated, but I like cars and car talk. Don't take the responsibility for a used Audi or Volvo either. Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 I don't know the details of finances, but the $9k car will need repairs that a tricky warranty won't cover. The $20k car will just be a basic shell, but might last, might not, but I wouldn't think it your responsibility.I know with my Dads experience with a lease, he has usually had some kind of problem when returning it. Also, with a $9k car, it would seem like you could get more car for the buck, but bells and whistles are what breaks first. That $9k range has always scared me. I would either go new and suck up the higher payment or go cheaper, hope for the best and save the pennies for the next car. Don't know if any of this is relevant or appreciated, but I like cars and car talk. Don't take the responsibility for a used Audi or Volvo either. Thanks Koolblue, I'm thinking the same thing as you here. 9k you're looking at 5-8 years old, roughly 80-100k miles. Thing start coming due at that point, timing belts, clutches, etc that can add up fast if they go wrong. That's why I'm a lot more comfortable with new cars. Link to comment Share on other sites More sharing options...
Koolblue13 Posted September 28, 2012 Share Posted September 28, 2012 Thanks Koolblue, I'm thinking the same thing as you here. 9k you're looking at 5-8 years old, roughly 80-100k miles. Thing start coming due at that point, timing belts, clutches, etc that can add up fast if they go wrong. That's why I'm a lot more comfortable with new cars. I'm a car guy, so it's different for me. I would buy a car for under $4k, probably around $2k. Drive it for a year and make your $200 imaginary payments into an account. After one year you'll have money to buy something better. Link to comment Share on other sites More sharing options...
Dictator Posted September 28, 2012 Share Posted September 28, 2012 That's what I'm thinking- so short term if I'm trying to keep my debt to income low and don't want to be driving a beater, a lease would be a good option for me? yes. but at the end of paying off the debt, you still have an asset with one (buying), and are left with nothing at the end of the term with the other (lease) I will add, there are a number of worthwhile cars for under $20k. A hyundai accent for example could be had for $13k. Link to comment Share on other sites More sharing options...
Koolblue13 Posted September 28, 2012 Share Posted September 28, 2012 yes. but at the end of paying off the debt, you still have an asset with one (buying), and are left with nothing at the end of the term with the other (lease) But the asset is a car that starts at $9k, which is probably worth closer to $7k and when he resells it in a few years, not much more than $4k and that's after putting a lot of money into it. Link to comment Share on other sites More sharing options...
Dictator Posted September 28, 2012 Share Posted September 28, 2012 But the asset is a car that starts at $9k, which is probably worth closer to $7k and when he resells it in a few years, not much more than $4k and that's after putting a lot of money into it. nobody can predict how much money will be put into a car to keep it running. he might get lucky and get a car that doesn't require much up keep at all. There are after market warranties available as well. though, I can't speak to how worthwhile they are as I've never purchased one. Link to comment Share on other sites More sharing options...
Koolblue13 Posted September 28, 2012 Share Posted September 28, 2012 nobody can predict how much money will be put into a car to keep it running. he might get lucky and get a car that doesn't require much up keep at all. There are after market warranties available as well. though, I can't speak to how worthwhile they are as I've never purchased one. That's true. He might get lucky. It depends on the type of car he gets. I'd stay away from the warranty. Even most of the ones from the dealerships are crap. Link to comment Share on other sites More sharing options...
Dictator Posted September 28, 2012 Share Posted September 28, 2012 That's true. He might get lucky. It depends on the type of car he gets.I'd stay away from the warranty. Even most of the ones from the dealerships are crap. I hate bringing rational decision making into conversations about buying cars. There isn't anything rational about most car purchases. Otherwise, people wouldn't spend $50k on a car. Or buy an SUV when they don't go off road...or any number of things people look for when car shopping. If it were a rational process, most of us would be driving Smart cars. Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 yes. but at the end of paying off the debt, you still have an asset with one (buying), and are left with nothing at the end of the term with the other (lease)I will add, there are a number of worthwhile cars for under $20k. A hyundai accent for example could be had for $13k. Yeah I hear you with this, but unfortunately my short term debt to income is more important. Link to comment Share on other sites More sharing options...
THEREALTOR1 Posted September 28, 2012 Share Posted September 28, 2012 Tailgate advice requested. I'm having a hell of a time finding a firm answer online. I'm just going to lay out my hypothetical (and realistic) example. Is debt to income calculated using monthly debt expenses, or by using your current outstanding balance? I've read monthly expenses online, but the customer service rep at the bank who is helping us kept asking for the current balance. Assuming they are looking for current balance, how does a lease affect that? I can pay $200/mo for a new $20k car (lease) or I can pay $200/mo for a used $9k car (loan) With the purchase, obviously my outstanding balance is $9k. But with the lease, is my outstanding balance calculated by the value of the car, or is it (IMO rightfully) calculated by the total of my outstanding payments through the life of the lease? The example here would be $200/mo for 36 months equals an outstanding balance of $7,200. Or is it still calculated based on the value of the car? What are you trying to calculate the DTI for, A home purchase? ---------- Post added September-28th-2012 at 12:25 PM ---------- Debt to income is typically calculated as a monthly figure. total net monthly income vs. total net debt payment every month.with the lease your outstanding balance should be the total outstanding lease payment. Value of the car shouldn't be a factor. but it's not as simple as mo. payment * no. of months left. Actually its gross income, not net. Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 What are you trying to calculate the DTI for, A home purchase?---------- Post added September-28th-2012 at 12:25 PM ---------- Actually its gross income, not net. Confirmed, home purchase, and yeah I know it's gross income. Link to comment Share on other sites More sharing options...
THEREALTOR1 Posted September 28, 2012 Share Posted September 28, 2012 Confirmed, home purchase, and yeah I know it's gross income. Then he/she is probably just looking for the current balance to see if its a debt that they can exclude from your DTI. If there's less than 6 (sometimes 10) payments remaining on an installment debt, in can be excluded from DTI ratios based on most underwriting guidelines. Also, the 1003 loan app has to have your monthly payment/outstanding balance listed on it as part of your debts/liabilities. Regardless, it should be showing up on your credit report, so I don't know why he/she can't just pull it off of that. Either way, the "balance" won't have any bearing on your qualifying (unless it can be excluded), its the DTI based off of monthly debt obligtations/Gross monthly income that will determine the ratio and whether or not you qualify according to u/w guidelines. Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 Then he/she is probably just looking for the current balance to see if its a debt that he can exclude from your DTI. If there's less than 6 (sometimes 10) payments remaining on an installment debt, in can be excluded from DTI ratios based on most underwriting guidelines. Also, the 1003 loan app has to have your monthly payment/outstanding balance listed on it as part of your debts/liabilities. Regardless, it should be showing up on your credit report, so I don't know why he/she can't just pull it off of that. Either way, the "balance" won't have any bearing on your qualifying (unless it can be excluded), its the DTI based off of monthly debt obligtations/Gross monthly income that will determine the ratio and whether or not you qualifying according u/w guidelines. Got it, thanks! For whatever reason Navy Federal is asking for the remaining balance of the debt but my wife was finally able to confirm for leases it's just the total of remaining payments, so I'm thinking I'm good to go with that. Link to comment Share on other sites More sharing options...
THEREALTOR1 Posted September 28, 2012 Share Posted September 28, 2012 Got it, thanks! For whatever reason Navy Federal is asking for the remaining balance of the debt but my wife was finally able to confirm for leases it's just the total of remaining payments, so I'm thinking I'm good to go with that. Cool. Yeah so it was the number of payments remaining to see if they could exclude the monthly debt obligation from your total DTI (and w/ VA, which is just an assumption based off you mentioning NFCU, its 10 payments or less). Link to comment Share on other sites More sharing options...
TheGoodBits Posted September 28, 2012 Author Share Posted September 28, 2012 Cool. Yeah so it was the number of payments remaining to see if they could exclude the monthly debt obligation from your total DTI (and w/ VA, which is just an assumption based off you mentioning NFCU, its 10 payments or less). Correct, located in VA. Link to comment Share on other sites More sharing options...
TradeTheBeal! Posted September 28, 2012 Share Posted September 28, 2012 monthly vs gross income. Link to comment Share on other sites More sharing options...
Elessar78 Posted September 29, 2012 Share Posted September 29, 2012 Our realtor, not that we were planning on it, said not to buy a new car (with a loan) or open new lines of credit until our home purchase was done. At that, don't open new lines of credit until about 6 months after you purchase your home so you get a feel for the finances involved with that particular home. I'm from a minority school that sees new cars as a bad purchase because of depreciation. The too much repair costs angle is a false argument, IF you buy a car with a good track record. I have an 03, Accord with 160,000 miles. I've kept it in great condition inside and out and it hasn't needed a major repair. It's KBB value is about $3,000. So, I believe you can get a really good car for not a lot of money. My "school" also sees leases as definite no-nos, because the money angle just doesn't work out. But we're not "car" people or drive status symbols, nor do we own "beaters". At 100K miles, I felt like my Accord had a lot of life left. But of course, there's other individually valid reasons to buy/lease a nicer car. I won't say that having a nice ride is wrong, just not for me. Link to comment Share on other sites More sharing options...
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