In the old days, you know before Barney Frank told us on the O’Reilly Factor that mortgages were a safe bet and Fannie Mae was solid (very tounge in cheek) if you had an auto lease and there were fewer than 10 remaining payments remaining in the lease and if you were applying for a conventional mortgage loans lenders were not required to count the lease payment against your total debt to income ratio as a factor to making a loan. As is with the likes of some of the UK’s top guarantor loan lenders, it might not have mattered much if you had other loans or leases to be paid. Although this might not be the case anymore in the USA.
An exception was unless the lease payment consumed so much of your income that it would prevent you from being abler to make your new mortgage payment, however this may differ if you are renting and have a lease agreement with your landlord.
Three years into the Great Recession we know that Barney Frank was wither lying or is just plain stupid because since shortly after he made that statement to Bill both Fannie Mae and Freddie Mac have been in a quasi state of bankruptcy no mans land we call receivership of the US Federal Government. Its stock prices has plummeted from it’s all time high of around $65 a share to where it sits today a whopping .30 that’s right, THIRTY CENTS a share.
So today if you have an auto lease payment, the full payment is calculated against your debt to income ratio regardless of how few payments remain. This is so that merchant processing services can handle it in a more streamlined manner, amongst other reasons. An Underwriters thought process albeit it not MINE goes something like this;
Auto Lease payments must be considered as recurring monthly debt obligations regardless of the number of months remaining on the lease. This is because the expiration of a lease agreement for rental of an automobile typically leads to either a new lease agreement, the buyout of the existing lease, or the purchase of a new vehicle.”
What should you do then if you have a high auto lease payment and you are like so many debt averse Americans (that just sounds strange to be coming off my keyboard) and are de-leveraging (paying off debt and not incurring new debt) and dare I suggest, PAYING CASH for your next car (Dave Ramsey will be so proud of us both)? It might be a smart idea for some to consider talking to companies similar to swapalease to understand their options when trying to exit a lease all together to improve their debt to income ratio in aid of getting a mortgage.
In this case a signed statement of your intent, evidence that you have the means to pay cash for your next car and perhaps even an estimation of the year make and model that you plan to replace your leased car with should be sufficient to prove intent and in most cases will be enough to appease even the most battle hardened underwriter!
- Underwriting Tip – Bankruptcy Waiting Periods – VA (theraleighmortgageguy.com)
- Underwriting Tip – VA Loans Unmarried Applicants (theraleighmortgageguy.com)