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Alright this is going to sound weird, I’m saying that because I haven’t been able to find the answer to this simply anywhere.

In October my girlfriend desperately needed another car, hers had become unsafe to drive and I wouldnt let her drive it. Finally after having it shut off on the freeway going 75mph while i was driving i finally had enough and told her we needed something new. So she could have something reliable and I could well drive my car again. So we did some shopping, finally picked out a car she liked and ran into problems with financing because of her credit score. No big deal at the time, my credit is good and I was able add another car without her name on it and we haven’t had any problems with her making the payments. I know this is a straw deal so dont come after me.

Well here we are 8 months later and I’m trying to buy a house and get a mortgage. So after just about every scenario the only way to get this sucker done is to get her car off my credit. They wont let me ground my lease so its her car that needs to go bye bye. We’re still not entirely sure she can qualify for this loan on her own so i suggested just buying the rest of the loan outright from our lender (no pre pay pen in WI) All’s well and good I get my mortgage but I was planning on using that left over money for peace of mind and maybe a quick improvement to the new place. My mortgage lender suggested refinancing the car after closing to get the money back. That sounded like a great idea to me, but I’m wondering...

How would I go about doing this? Is it even possible to refinance an already paid off auto loan for a similar length and amount than what was left on the previously paid off loan? Any help would be greatly appreciated.

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No, it's not likely that you'd get the same exact terms as the original loan. That was secured on a car 8 months ago that isn't the same car as it is now; it's depreciated, significantly if it was a new car, less significantly if not, but either way.

You also have a big loan on your credit now that you haven't shown any payments on yet I suppose, and so that makes you a bit more of a risk. Refinancing a car loan is also something of a risk in and of itself - most people don't do this, and the folks that do are, for the most part, riskier.

To be perfectly honest, if the money you're talking about is just for your 'in case of' fund, leave it where it is - in the house. Auto loans that aren't new car loans used as incentive to buy are not particularly good rates; your mortgage is a much better rate, undoubtedly. Your home equity is cheaper to borrow off of and in most cases not all that hard to borrow off of.

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My mortgage lender suggested refinancing the car after closing to get the money back. That sounded like a great idea to me, but I’m wondering...

How would I go about doing this? Is it even possible to refinance an already paid off auto loan for a similar length and amount than what was left on the previously paid off loan? Any help would be greatly appreciated.

You have several issues that will make this complex.

My credit union does advertise that they will refinance an auto loan. They do this when you have a loan on the car from another lender, and the credit union has a better rate. This isn't what you are doing, so they may throw up other requirements such as getting the car appraised or may limit the percentage of the value they will loan you.

The auto loan will be applied for just a few months after getting a mortgage. They may decide that the debt is too new, and reject your application.

I am surprised that the mortgage lender is suggesting this. They don't like to see big transfers of money just before getting the mortgage. Paying off the loan may make it seem that your available cash is too low. They also don't like to know that the plan is to take on debt just after the new mortgage, because it makes you a riskier customer. Of course if the lender isn't going to hold the loan very long, then if the plan implodes a few months after you move in it is somebody else's problem.

  • Your last sentence likely captures this to a T. The lender isn't going to hold onto the loan, and he/she only cares about what goes into the paperwork, as that's what determines the grade the loan gets when it's securitized. – Joe Apr 19 '18 at 14:35
  • Thank you, i was surprised this was an option in his eyes too. I thought the same about large chunks of money going away right before close. I suggested buying the car and figured I’d just wait till she could get a loan and buy the car back from me then I could remodel my bathroom with that money I’d saved. The suggestion to refi after close was thrown out and I was mainly curious. Guess ill have to talk to my bank to see what i can do with a auto title in hand. Thanks a lot – user71324 Apr 19 '18 at 14:59
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The facts:

Once you have a title in hand, you can finance a car. It doesn't matter if the car was previously financed or not. You can simply check the terms at your local bank or credit union by visiting their used car page. Its unlikely, purely by chance, that you can exactly duplicate your current terms. However, you may be able to improve them! One can either shorten the terms, lower the payments, or lower the interest rate.

It never hurts to call a couple of banks and inquire about the deals currently available.

Obvious pitfall:

All that being said, if you follow this mortgage person's advice, you may not be able to qualify for the auto loan as you now have a home on your credit. It may put you over some threshold that either precludes you from obtaining a loan or qualifying for low rates. They may only offer this financing at unfavorable terms.

Editorially:

You're broke, you have no business buying a home. Get these cars paid off (and any other consumer debt), save up a down payment, then look to buy a home. If you are buying a fixer upper, you need margin well beyond what you think it will cost you to make the repairs/improvements you desire.

Heck even if buy a brand new home, between blinds, additional fixtures, paint it is quite easy to spend a significant amount of money to make it livable. And that is with a new build!

  • I think there's good advice to be had regarding appropriateness of indebtedness and all that, but someone who can pay off a car in full from savings isn't "broke". It also sounds like they've already bought the house, so, a bit late in any event. – Joe Apr 19 '18 at 14:34
  • I appreciate your response. But that editorially part really has no business being there. I’m putting 20% down on home, and paying off a $21,000 car loan... writing personal checks for both of these items.... I can still get by just fine without doing the above suggested. Thought this site would help unfortunately its just like the rest of the internet. Just a bunch of hey lets judge someone based on absolutely nothing. – user71324 Apr 19 '18 at 14:46
  • @WaltN it is not based on "nothing", it is based upon the information presented in your question. If that does not apply why did you include them in your question? You are okay with the mortgage broker providing advice, why are you not okay with someone providing advice to the contrary? Please think about that. If you have enough money to pay off your car, her car, put 20% down, have an emergency fund, and get a 15 year mortgage for less than 25% of your take home, then buy the home. You are in a great position. However, that is not what you outlined in your question. – Pete B. Apr 19 '18 at 15:07
  • The “you’re broke, no business buying a home” you dont even know me? I work 60-75 hours a week, I save as much as I possibly can. I have $0 in CC debt, $0 in student loans. I helped a friend who was desperate, now I’m forced to make a decision. luckily ive put myself in a position to do both of these things without worry. The first part of your answer was what I was looking for, if its gonna be a hassle to do I’ll just wait it out for a while. If it was an easy thing thru the bank ill get the bathroom done right away. – user71324 Apr 19 '18 at 15:20
  • You are correct, I do not know you only what you wrote in your question. My answer was based on that. It is good that you can delay gratification in lieu of assuming risky loan schemes. Something else to consider given that you work so much: when and how will the maintenance on this home be done? Owning a home can be like having a part time job. – Pete B. Apr 19 '18 at 17:06

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