Learn how to calculate your debt-to-income ratio
Jessica White/DC Columnist
Issue date: 6/24/07 Section: Business
If your sister is added to the loan and you are a "co-signer," the debt will still be factored into your debt-to-income ratio. The debt and payment record will still be on your credit report. If she fails to pay on time, any negative information caused by your sister will be reflected on your credit report as well. If the loan remains in your name and if your sister makes the monthly payments on time for the next twelve months in a way that can be documented, then that monthly debt will no longer be factored in to your debt-to-income ratio.
If you do this, be sure to set up a reliable and verifiable system for her to make the payments to ensure that they are paid on time. If she is late with a payment, then guess whose credit score will be adversely affected - yours! You will have to monitor her payments every month, in advance of the due date, to ensure the loan is paid on time. You also would be wise to make sure you are able to pay it if she is unable to do so. I would also strongly advise you to talk to your car insurer if she is going to be the primary driver of your vehicle.
I often tell people that every dollar they spend on the car loan is a dollar less they can spend on a mortgage. You monthly car payment equates to about $85,000 in mortgage debt, at 6.5% interest. Having a record or your sister making twelve months of on time payments will increase your purchasing power and put you within reach of buying a modest home for yourself.
Your sister taking over the car payment frees up a tidy sum each month for you to save. I would suggest that you talk to your bank about having money automatically transferred into a separate savings account every pay period or month. The savings you accumulate will help you qualify for a home loan, either in the form of a down payment or as reserves. Best of luck,
Jessica White, also known as "Ms. Mortgage Maven," is a DC resident and a home loan consultant for the largest lender in the country. Please call or email her with your questions at 202-607-4449 or jessica@msmortgagemaven.com. You can also visit her online at www.msmortgagemaven.com.
If you do this, be sure to set up a reliable and verifiable system for her to make the payments to ensure that they are paid on time. If she is late with a payment, then guess whose credit score will be adversely affected - yours! You will have to monitor her payments every month, in advance of the due date, to ensure the loan is paid on time. You also would be wise to make sure you are able to pay it if she is unable to do so. I would also strongly advise you to talk to your car insurer if she is going to be the primary driver of your vehicle.
I often tell people that every dollar they spend on the car loan is a dollar less they can spend on a mortgage. You monthly car payment equates to about $85,000 in mortgage debt, at 6.5% interest. Having a record or your sister making twelve months of on time payments will increase your purchasing power and put you within reach of buying a modest home for yourself.
Your sister taking over the car payment frees up a tidy sum each month for you to save. I would suggest that you talk to your bank about having money automatically transferred into a separate savings account every pay period or month. The savings you accumulate will help you qualify for a home loan, either in the form of a down payment or as reserves. Best of luck,
Jessica White, also known as "Ms. Mortgage Maven," is a DC resident and a home loan consultant for the largest lender in the country. Please call or email her with your questions at 202-607-4449 or jessica@msmortgagemaven.com. You can also visit her online at www.msmortgagemaven.com.
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