Which should I do first, refinance a mortgage or buy a car?

April 23, 2015 12:16 PM

Can I refinance my mortgage and buy a new (used) car at the same time? I’m not sure which to do first or if I need time in between, and it’s complicated by the fact that my husband will be seasonally unemployed for the summer, starting in about three weeks. He has employment history going back three years showing this seasonality. I’d like to do the refinance first because the savings from that will almost cover the car payment, but afraid that the closing will fall through if it takes more than a month and they do employment verification later. Anyone have experience with this?
posted by saffry to Work & Money (7 answers total)

Best answer: Do the refi first. There's nothing you can do about the seasonal employment, just let your mortgage officer know about it and see what they say.

Car financing is super-easy to get so getting a car loan will be no problem no matter what, but mortgage people do look askance at new loans so 100% for sure do the refi first -- don't start car shopping until after you have closed.

If it turns out you can't refinance until your spouse is working again, then I would buy the car now and then do the refi in the fall. If you car loan is at least 6 months old when you start the refi it shouldn't raise questions.
posted by rabbitrabbit at 12:51 PM on April 23, 2015

Best answer: The refinance will almost certainly take longer than a month.

How the employment verification works depends on the lender, but they would ask about your employment status going back several years and if it already shows the seasonality then the underwriter will likely know it's coming and take that into consideration in their decision. They are also within their rights to ask again about employment status right before closing. You can't do anything about this, so just be upfront about it and if you have enough assets to get you through the seasonal unemployment it should be fine.

It's not entirely clear in your post, but I'm interpreting that you're planning on buying the car on credit. If you're going to do that before the refinance process, it's unlikely it will do anything but make your application look worse because of 1) the credit check for the auto loan and 2) increased debt obligation you have that will go into the refi calculation.
posted by Karaage at 12:53 PM on April 23, 2015

We were in the midst of setting up our refi when Mr. BlahLaLa was in an accident that totalled his (paid off) car, and we needed a new one, which meant a car loan. I told my mortgage dude about it -- yeah, you have to be honest because they're going to see it on your credit report -- and it just wasn't a big deal. Didn't change any of the refi details.
posted by BlahLaLa at 1:02 PM on April 23, 2015

Two key bits of mortgage approval data are the debt load and the liquid assets. If you are close to the debt ratio threshold you should delay taking out the car loan until after the refi. If you have any questions about your ratio you can ask the loan officer. If you are going to deplete the cash needed to close the loan by buying the car you should delay it for that reason.

As far as the seasonal unemployment question, with the three year history of this you will just have to document that fact sufficiently for the loan documentation. They will probably use the annual total of his income to come up with an average monthly income number.
posted by Midnight Skulker at 1:23 PM on April 23, 2015

Refi first, hands down. The mortgage bank will already get nervous about recent big transactions; the more steady-state you look, the better.
posted by Dashy at 2:22 PM on April 23, 2015

Response by poster: Well, that's unanimous. Thanks all!
posted by saffry at 3:49 PM on April 23, 2015

Response by poster: Quick follow-up. The refi took forever, but I closed on that Aug 7th and picked up a 2014 Ford Focus yesterday. Great rates on both, so I'm very happy. Thank you again!
posted by saffry at 5:20 AM on August 27, 2015 [1 favorite]