You’ve done all that you could to get approved for a mortgage; you’ve paid down your credit cards, you’ve been paying all your bills on time, and you’ve even saved a bit for a down payment, but you are still being declined. Perhaps your car lease is the barrier that’s keeping you from moving in to your dream home. Read on to find out why and what you can do to improve your situation.

The first thing to think about is your debt-to-income ratio. If this ratio is above 25% it will be hard if not impossible to get approved for a mortgage. Although you’ve kept all your other credit obligations to a minimum and you are paying all of your bills on time – this effort is simply not enough. If you have a car lease that you are paying off each month, guess what…it could be this loan that’s tipping you above the 25% debt-to-income ratio.

You have to understand that a car lease is different from a car loan. With a car loan if you have for example $8000 due, at $400 per month – you can pay this all off in a lump sum payment of $8000. You could also put in an $8000 lump sum towards the lease, but the mortgage lender will be cautious as the lease may include additional obligations from your end. If you are in this situation make sure to cover all of the following:

Talk to the car dealer: Check if there are any additional obligations, and make it clear that you need to be out of the lease completely.

Transfer the lease: A mortgage company will allow this but just make sure everything is transferred completely and that there is no further obligations from your end. If you don’t have someone in mind, ask the car dealer if they have any suggestions.

Pay out and look for something cheaper: Pay the remaining balance, give the vehicle back and use cash to buy a cheaper car. If you don’t have the cash on hand, as an alternative, finance a car that has much lower monthly payments.

Consider your true wants: If all of the sudden you are being lured into a great car lease deal…think about what you want more the home or the car.Lastly as one final tip – although it is good to pay off all of your debt, you will not get any additional benefits; lenders will only consider your obligations when calculating the debt-to-income ratio.

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