# pay off negative equity car before buying a home?



## dbro30 (Mar 29, 2014)

At 25 I went bankrupt. I am 30 now and am a business owner and now my common law wife wants us to buy our first home (with a income suit)

I rebuilt my credit by getting 2 very small high interest loans and from there I bought a car at 25% interest rate. After a year I traded it in for a new suv at a 16% interest rate and over $10,000 negative equity in it. I pay $800 a month. At that time I got a low limit capital one credit card.

A year later I checked and my credit score was 601.

I've now had that suv for over 2 years with perfect payment history, capital one tripled my credit and td bank gave me a 500 secured credit card. Hoping my scores better now.

I am in a position that I could pay off my negative equity with cash and wanted to trade in the suv at that time for a new one with my wife for a much better interest rate and a decent monthly payment with no negative equity. (she has a good credit score)

My train of thought is that by doing that when I apply for a mortgage it would show a good car loan and not a high interest, high risk, upside down loan but I am curious if it may hurt me by initially lowering my fragile credit score.

I belive I am close to having all my ducks in a row now, steady income from my company, wife's in real estate doing good, I invest in stocks regularly and put money aside.

I'm just not sure if that suv needs taking care of before the House or does the longer history with that loan look better when applying for a mortgage?

I'm sorry my first post on this forum is such a long one but I would really appreciate everyone's input and insight.


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## Westerncanada (Nov 11, 2013)

dbro30 said:


> At 25 I went bankrupt. I am 30 now and am a business owner and now my common law wife wants us to buy our first home (with a income suit)
> 
> I rebuilt my credit by getting 2 very small high interest loans and from there I bought a car at 25% interest rate. After a year I traded it in for a new suv at a 16% interest rate and over $10,000 negative equity in it. I pay $800 a month. At that time I got a low limit capital one credit card.
> 
> ...


 
I have no doubt there is going to be great feedback and advice available on this forum.. if I could suggest though, you really should discuss with a mortgage broker to see what your options would be with respect to Mortgage rate etc.. they may be able to do something competitive but before you even consider this option you'll need to see what kind of interest rate you would get after 5 years of clean bankruptcy. If the rate is much too high it maybe better off waiting, that said your wife maybe able to apply on her own and you can support with down payment? 

Just a thought.. best of luck!


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## RBull (Jan 20, 2013)

First off congrats on getting things turned around. Nice job. 

My second thought is why do you need a new SUV when you still have a lot of debt and only a 2 year old vehicle? You'll be putting yourself upside down again on a vehicle, and at the same time taking on mortgage debt. Too much risk when you're recovering and rebuilding. Pay down the relatively high interest rate of 16%, and get the vehicle paid off asap. I like the idea above regarding getting an idea of mortgage rates for your and/or your wife, for the lowest cost option.

Maybe someone at your bank can answer some of your original questions in a hypothetical manner before taking any action.


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## couchman (Oct 10, 2013)

I agree with RBull. I am allways confused when people invest on a regular basis and then go buy such expenses things that depreciate in value so fast. Does not matter what vehicle I have owned over the years from Hondas to BMW's after about 6 months the novelty has worn off and it is just a vehicle with monthly payments coming out. Congradulations though for getting back on your feet so fast thats great news. In my opinon I would do everything to avoid a new vehicle.Just my 2 cents.


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## Sherlock (Apr 18, 2010)

Let's see... he goes bankrupt, then he finances a car at 25% interest. Then he finances a new SUV for $800/month. Now he wants to trade in that 2 year old SUV for ANOTHER new SUV. It's only a matter of time before he goes bankrupt again. Some people are just beyond help.


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## dbro30 (Mar 29, 2014)

The idea behind the new suv is that with my negative equity and high interest rate I pay 800 a month.

I want to not only pay off the negative equity but lower the monthly payment and just putting 10k on the principle will now lower my monthly payment at all. 

We can pay it off and trade it on a modest lease vehicle or slightly used (year or 2 old) thus having not only a way better interest rate but as well a much lower monthly payment which would open up my debt/income ratio a bit more for a better mortgage. 

Thank you so far for the comments, minus that last one.


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## marina628 (Dec 14, 2010)

I have to agree with Sherlock here , too much focus on the car here .Drive that thing into the ground and pay it off as fast as possible.The fico score being 601 likely will get you a mortgage as long as all your debts are current.One way or another you should get rid of that 16% car loan.


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## dbro30 (Mar 29, 2014)

marina628 said:


> I have to agree with Sherlock here , too much focus on the car here .Drive that thing into the ground and pay it off as fast as possible.The fico score being 601 likely will get you a mortgage as long as all your debts are current.One way or another you should get rid of that 16% car loan.



I am focused on getting a mortgage at this point, I could care less about the car itself. It is a newish low km great vehicle, but -10,000 into it, 800 a month over a extended term loan....... I just thought it may be a good idea to get into a "normal" loan and free up some available monthly income because that may or may not help with my mortgage.

I wanted to come here for the advice because I honestly don't know. If my best option is to keep the suv, drop 10k on the principle and keep paying it as normal and none of that will affect my ability to get a modest mortgage then I am perfectly ok with that. 

It should be noted that I am not trying to find ways to improve the amount I can be approved for as I will not be using it all anyways, we make a very good living right now but my wife is only 2nd year realtor and doesn't have the required 2 NOA. And my credit rating is far behind my income. We will be buying very modestly, I just needed to know if I would need to deal with my car situation before or not.

Once again I appreciate the help.


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## marina628 (Dec 14, 2010)

I would speak to your bank when you will eventually get the mortgage and address the car loan situation ,they may be willing to work on that for you now and get a lower interest loan.How much is the car loan?I can't see how going more into debt will help the situation for the mortgage to be honest.The bank will not see the negative equity on the car , the car payment amount is all they care about.You can plug your numbers into a mortgage calculator like on the big bank websites to see if you will qualify.


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## jamesbe (May 8, 2010)

Swapping cars automatically means more $ unless you are swapping for a much much cheaper vehicle. Remember you will lose the taxes right off the bat. 

Better to see if your bank can get you a loan at a better rate and just pay off that higher interest loan. Swapping the car to get a lower payment makes no sense, swap the loan not the car.


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## dogcom (May 23, 2009)

The car swap idea is also a red flag to me because it just seems like a story to convince oneself to get a nice new vehicle. This is a want issue and not a need issue that is being papered over. So do whatever you can to pay off or restructure the loan on the SUV you own now. The next thing you need to ask yourself about is how you will handle the needs and wants especially when money gets tight, when or if you get a mortgage and buy a home.


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## hboy43 (May 10, 2009)

marina628 said:


> I would speak to your bank when you will eventually get the mortgage and address the car loan situation...


This is my thinking too. Walk into the bank, say you want to put $10K on the car loan and refinance the remainder of the loan at a much better rate than 16%. Part of that might be to lower the monthly payment from $800, or not.

I just don't see any scenario where it is a good idea to be paying 16% if there are reasonable chances not to. I think you have reasonable chances not to.

hboy43


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## Feruk (Aug 15, 2012)

Don't worry so much about the $800/month, worry about the fact that at 16% you'll likely pay double the value of the car over the life of loan. Put as much against the principal as you can. I'd go to your bank and see what rate you can get, although I doubt it'll be anything better than 8-10%. My fiance has a 22% loan, and even with my perfect credit and high score, they'd only drop it to 8% if I co-signed. 

If possible, pay off the car before buying the house?


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## dbro30 (Mar 29, 2014)

The suv is a 2011 suzuki grand vitara I bought it a year old with 10,000km on it. It now has 50,000km on it and is worth around 20k, I owe 30k. 

I won't lie, there is a little bit of "want" in there. Suzuki quit selling in canada and although the they still warranty and have parts the general population is scared to buy something that is discontinued, because of that the depreciation rate increases.

That with my thought on lowering my monthly payment and so forth I thought it would make sense, plus mama wants a nice ride for her real estate.

I was not sure if this was the right/smart move which is why I came to this forum to ask others unbiased opinions.

I had thought about the refinancing option before as well, sounds like maybe that's a viable option


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## dbro30 (Mar 29, 2014)

I may be a little naive her but I am not sure what the difference would be between paying off the negative and refinancing the remainder at a lower interest rate then when it's paid off buy a new vehicle opposed to paying the negative off and trading it for a leased vehicle?

Keeping a paid off vehicle cause it's paid for will never be a option. I will always have a lease payment and will always have warranty which I want.


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## andrewf (Mar 1, 2010)

Good luck and good work on getting your finances back in order. Not there yet but you're on your way.


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## Arshes76 (Jul 5, 2013)

dbro30 said:


> At 25 I went bankrupt. I am 30 now and am a business owner and now my common law wife wants us to buy our first home (with a income suit)
> 
> I rebuilt my credit by getting 2 very small high interest loans and from there I bought a car at 25% interest rate. After a year I traded it in for a new suv at a 16% interest rate and over $10,000 negative equity in it. I pay $800 a month. At that time I got a low limit capital one credit card.
> 
> ...


With the way the RE market is heading i personally wouldnt bother with a house purchase, and you common law wife works a realtor correct? Her income may not be there in the near future. What city are you looking to purchase in? 

Personally i think your bankruptcy may make it hard to get a mortgage now, it may have been different a few year back. I read about a woman who two years after her backruptcy who got a 8% mortgage a while back, but now banks are being a bit more cautious so that may not be the situation in your case. And your wife may not qualify on her own, even with a "Mortgage Helper". I think your better off saving for a bigger down payment and waiting for the RE correction.


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## Spudd (Oct 11, 2011)

dbro30 said:


> Keeping a paid off vehicle cause it's paid for will never be a option. I will always have a lease payment and will always have warranty which I want.


It is always an option. It is just apparently an option you choose not to take.


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## dbro30 (Mar 29, 2014)

Arshes76 said:


> With the way the RE market is heading i personally wouldnt bother with a house purchase, and you common law wife works a realtor correct? Her income may not be there in the near future. What city are you looking to purchase in?
> 
> Personally i think your bankruptcy may make it hard to get a mortgage now, it may have been different a few year back. I read about a woman who two years after her backruptcy who got a 8% mortgage a while back, but now banks are being a bit more cautious so that may not be the situation in your case. And your wife may not qualify on her own, even with a "Mortgage Helper". I think your better off saving for a bigger down payment and waiting for the RE correction.


Our city is saskatoon, it is a thriving market and the province was literally untouched by the recession. She is in her 2nd year but does not have her 2nd year noa. Therefore it is questionable at this point if she can be on the mortgage although I hope so for the credit boost. 

Right now she is still growing her career after we focused on mine first, any money she brings in is considered extra at this point and never considered in our planned income. I own 3 oil haul semis that work in the alberta oilsands and believe my income to be very stable.

The down payment is no issue to save for and as I stated earlier we are looking for a investment property so either a condo or older small house. 250k tops, odds are way less.

I was discharged in 09 Aug.


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## dbro30 (Mar 29, 2014)

Spudd said:


> It is always an option. It is just apparently an option you choose not to take.


The choice to buy new or lease new or keep old usually comes down to lifestyle choice.

I have a paid off 07 f150 for company use and a paid off 07 ford fusion which I drive when home.

You always see realtors driving luxury cars and the new ones live by the saying "fake it till you make it" because Noone wants a realtor with a old jalopy because it portays they aren't doing well.

My wife isn't that bad but has stated she would prefer to have newer vehicles (new escape for example) for driving clients around in and I personally like knowing she has full warranty and roadside at all times when I'm out of town working.


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