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Mortgage DTI Case Scenario
I need to buy a house and I got denied with a lender who was extremely incompetent where I got pre-approved and at the last minute I got denied due to my debt to income ratio. I am trying to buy a house for $200,000. My situation is I have full time employment. However, in 2024, I worked 40 hours consistently and made 80,000. However, in 2025, I only made 50,000 because my hours was reduced to a minimum of 32 hours due to going to a certificate training program for work. I am still classified full time since I work between 32 and 36 hours. I will be done with the certified training program in June 2026. I also have two newer vehicles under my name which is 780 per month for mine and 600 per month for my fiancee. This pushes my debt to income ratio to 70% back end with my father included as non-occupant co-signer. What solution do you have on me qualifying and getting approved for an FHA loan? Any ideas would be greatly appreciated. Is there any way my fiancee can take the hit on the vehicle he is driving and paying for even though it is under my name? He cannot refinance under his name because he went through a divorce and has tons of recent derogatory tradelines.
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10 Replies
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You are facing two related challenges: the income an FHA lender will recognize and your total monthly debt. The decrease in your income from $80,000 to $50,000, along with two car loans, is affecting your FHA debt-to-income (DTI) ratio. This issue is not due to a lender error.
How FHA Likely Thinks of Your Income
Since your income in 2025 decreases substantially compared to 2024, most FHA underwriters will use the most recent income figure unless there is clear documentation that the reduction is temporary and related to increased hours. In your situation, they are likely qualifying you based on the 2025 income level (approximately $50,000 per year, or $4,166 per month gross), rather than the $80,000 threshold. This approach stems from the downward trend in income and the absence of re-established higher 40-hour earnings.
- FHA lenders do not have explicit guidelines for defining stable income, except for averaging income to account for seasonal changes. When income drops by 20% to 40%, lenders usually default to the most recent, lower figure, as there are no specific rules for these situations.
You will need to demonstrate several months of pay at that level before most FHA lenders will consider the lower income. This makes your DTI very tight.
FHA DTI Limitations Compared to Your Current Figures
Standard guidelines from the FHA set front-end and back-end limits at 31 and 43 percent, respectively. In certain cases, such as through manual underwriting and with strong compensating factors, front-end limits can extend to the mid-forties, and back-end limits can extend to the low fifties.
- You mentioned a back-end ratio with a cosigner of about 70%. This is too high for automated approval, even if FHA lenders extend DTI limits.
- Your current auto loans exceed $1,380 per month, which is a significant portion of your DTI.
The primary challenge is the FHA guidelines, which require lower qualifying income and higher total debt obligations.
Options to Address the Car Financing
There are limited ways to reduce the impact of auto loans on your FHA DTI, and some options are more practical than others.
1. Prove someone else has been making a payment (usually for 12 months)
Agency rules for removing a non‑mortgage debt from DTI because another party pays it are clearer for conventional loans, but most lenders apply similar logic:
- Provide documentation of 12 months of on-time, scheduled payments from the other person’s account, such as bank statements or canceled checks.
- The person making payments must usually be legally obligated on the loan or have consistently made payments with no late history.
Your case has problems:
- The auto loan is in your name, and your fiancé cannot refinance due to recent negative credit.
- Even with a 12-month payment history from his account, most FHA lenders will still include the auto loan in your DTI since you remain legally responsible. FHA standards for omitting debt payments are stricter than conventional loans. If you can demonstrate a perfect 12-month record of him making payments, a flexible lender may assist; however, approval is not guaranteed.
2. Pay off or Pay down one of the auto loans
FHA guidelines allow you to omit installment debts with 10 or fewer remaining payments and payments under 5% of your gross income, though this rarely applies to recent, large auto loans. Paying off or significantly reducing one auto loan—through a family gift, personal savings, a 401(k) loan, selling the vehicle, or switching to a less expensive vehicle—can greatly improve your DTI.
- FHA focuses on the payment amount rather than the balance. Eliminating one vehicle payment is likely necessary for you to qualify for a $200,000 FHA loan at your current income level.
3. Let your fiancé qualify on a non-QM or portfolio auto refinance
Although he may not qualify for a traditional auto refinance due to negative credit tradelines, certain non-prime or ‘second chance’ auto lenders may be willing to refinance the loan solely in his name, albeit at higher interest rates. Non-QM (non-qualified mortgage) or portfolio lenders offer flexible lending solutions for borrowers who do not meet traditional lending standards. If he successfully refinances and the original auto loan in your name is paid off and closed, that payment will be excluded from your DTI.
The main drawback is that he may face higher interest rates for a time. However, this could help you qualify for an FHA loan and achieve homeownership sooner, depending on local auto finance options.
4. Examine price and program options
With $50,000 in qualifying income and significant auto loan obligations, purchasing a $200,000 home with FHA financing is likely not feasible until one of the following changes occurs:
- Lower price or more affordable area: Reducing your price target to $150,000–$175,000 (depending on taxes and insurance) can significantly lower housing payments and your back-end DTI, making FHA’s 31/43 guidelines more achievable.
- Increased Income: Your DTI will improve as your income increases, which is expected after your training ends in June 2026, when you return to 40 hours and earn about $80,000.
- Alternative loan options: Some non-QM or portfolio lenders may offer higher DTI limits, alternative calculations, or blended ratios. These options typically come with higher interest rates and additional costs for greater flexibility. Such loans may serve as a temporary solution until you can refinance into an FHA or conventional mortgage.
Given that your back-end ratio exceeds 70%, qualifying will require a combination of increased income, lower purchase price, and reduced installment debt. There is no viable alternative within the FHA framework
Including your father as a non-occupant co-borrower is helpful only if his income significantly improves the overall DTI and his debts are minimal.
- If his debts or limited income do not bring the blended DTI within FHA guidelines, adding him as a co-borrower will not improve your eligibility.
- In some cases, buyers wait for an income increase (such as after training) and then reapply, using the higher 40-hour income and possibly a better two-year average, especially if the new year’s W-2 supports the increase.
Your realistic path probably looks like this:
- Now – June 2026
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- Aim to eliminate at least one auto loan payment, either by selling, paying off, or refinancing to your fiancé if possible.
- Stay current on all debts and avoid taking on new obligations.
- Keep documentation related to your training program and employer records that confirm your full-time status and your expected return to higher hours and pay after June.
- Post-training (when hours are documented back up)
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- After you have several months of higher pay stubs, reapply for FHA financing. Ideally, you will also have a year-end W-2 showing income. Ask a flexible FHA lender to run an Automated Underwriting System (AUS) with and without your father as a non-occupant co-borrower to see which structure meets DTI requirements more easily. (AUS is a software lenders use to determine eligibility based on all entered data.)entered data.)
You can choose to share:
- Your current gross hourly wage and number of hours worked per week.
- Estimated taxes and insurance for the 200k homes you’re considering.
- Any additional debt (credit cards, student loans, personal loans).
With this information, an approximate FHA-style DTI calculation can be prepared to show the specific reductions in car debt, purchase price adjustments, or income increases needed for approval.
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Great topic. How can the fiance get the truck out of the homebuyers name and into his name with not so good credit. How does buy here pay here finance work? Can he get it refinanced from a auto finance company or does he or she have to purchase another vehicle from a buy here and pay here lot?
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Three primary methods exist to transfer the truck from the homebuyer to the fiancé, even if he has poor credit: a standard refinance in his name, a non-prime or ‘second chance’ refinance, or purchasing and replacing the truck through a buy-here pay-here dealership or another dealer that accommodates individuals with bad credit.
Refinance the truck straight into his name
Due to recent negative marks on his credit, a primary lender may not approve the loan. Nevertheless, this should be the initial option considered.
He may attempt to refinance the truck loan in his own name, potentially with you as a temporary co-signer. The lender will evaluate his credit scores, income, payment history, and whether the current truck payments have been made on time, regardless of whose name is on the loan.
If a subprime auto lender approves his application and he pays off your current loan, you will no longer be responsible for the debt, and the payment will not be included in your debt-to-income ratio for the mortgage. Although interest rates may be higher, this approach is the most straightforward way to remove the debt from your financial records.
Financing a Non-prime / “bad credit” auto
If mainstream banks and credit unions decline his application, he should consider non-prime lenders that specialize in assisting individuals with low credit scores.
- Numerous franchise and independent used car dealerships collaborate with bad-credit auto finance companies.
- These lenders may accept applicants with recent late payments, collections, or a history of bankruptcy, provided there is steady income and a reasonable down payment.
- While these lenders occasionally refinance existing vehicles, they more commonly finance new purchases.
- This typically involves trading in or selling the current truck and then financing a different vehicle in his name.
- Although the interest rate may be higher, selecting a less expensive vehicle can help maintain a manageable monthly payment.
Buy-Here Pay-Here (BHPH) Financing Is Generally Considered A Last Resort Due To Its Significant Disadvantages
- At a BHPH lot, the dealership sells and finances the car themselves.
- They usually do not check credit but look for steady income and a stable residence.
- You pay the dealer directly, often weekly or bi-weekly, sometimes in cash or with limited payment options.
- In addition to high interest rates and overall costs, BHPH vehicles are typically older and less expensive.
- Many dealers install tracking devices to facilitate repossession if payments are missed.
- These factors can quickly place buyers in a precarious financial situation.
Does he have to buy another vehicle?
It is not necessary for him to purchase from a BHPH dealership to remove the truck from your name. If you are considering BHPH, keep in mind that it should only be used as a last resort due to the high costs and increased risk of default.
Given these circumstances, the most effective approach is as follows:
- Start by checking with standard and subprime auto lenders to see if he can refinance in his own name.
- If that does not work, consider trading or selling the truck and helping him finance a less expensive vehicle, possibly through a bad-credit lender if necessary.
- Reserve BHPH financing exclusively for situations in which no other lender is willing to work with him, and it is essential to remove the payment from your credit profile.
- Once you provide his credit scores, down payment amount, and the truck’s current balance and value, I can begin outlining a decision tree that presents the most rThe following options have been discussed: we have discussed:
Option A:
- He refinances the existing truck with any lender he can get (prime, subprime, or non‑prime).
- Once his new loan funds are received, your current loan will be paid off and closed, and the title and debt will be transferred to him.
Option B:
- You sell or trade the truck, pay off your loan, and he finances a different, more affordable vehicle in his name through a bad-credit lender or BHPH dealer.
- This action fully removes the original loan from your credit and debt-to-income ratio.
To protect your eligibility for FHA financing, avoid BHPH if possible due to the high risk of default and elevated costs. I recommend proceeding in the following order:
- First, attempt to refinance with standard and subprime auto lenders in his name only.
- If this is not successful, consider selling or trading the truck and assisting him in financing a less expensive vehicle, potentially through a bad-credit lender if necessary.
- Reserve BHPH as a final option, to be used only if no other lenders are willing to work with him, and it is necessary to remove the payment from your credit profile.
- If you provide his estimated credit scores, down payment amount, and the current balance and value of his truck, I can create a rough decision tree to help us find the best auto finance options.
- Please proofread and let me know if anything needs correction.
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- The instructions are too vague, and you need to be much more specific when describing the task.
- It is often more effective to combine relevant information, rather than simply providing a list of links and expecting the user to infer the main ideas independently.
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If you are sharing a set of links, you need to explain their purpose and make it clear what you want to do with these documents. I cannot see any information from the documents themselves. If your goal is to provide links, you need to explain their purpose and give context.
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Randy, can you please advise on this case scenario. Client is buying a house but has two cars under her name. One of the cars is the fiance is paying for it but is under her name due to fiance having bad credit. Need to get 2016 GMC SIERRA 1500 WITH 109,000 MILES out of her name into his. Self employed general contractor, and reason for bad credit is because nasty divorce which was finalized in December 2025. Can you recommend a subprime lender? How does it work with self-employed folks. He has been in business for two years. Has disability benefits from the U.S. Armed Forces. One year left on disability.
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The fiancé is close to the highest limits most subprime auto lenders allow. He can put the 2016 GMC Sierra in his name if the deal is set up correctly and the amount owed is fair.
Overview: What Subprime Lenders Consider
For a $24,000 subprime loan on a 2016 GMC Sierra 1500 with 109,000 miles, lenders focus on these factors:
- Credit Profile: A score of 587 is considered “non-prime.” This is not a deep subprime loan, which is typically reserved for bad-credit programs where there are no recent repossessions or charge-offs.
- Payment History: On-time payments since June 2025 demonstrate responsible management of the truck loan.
Ability to Repay:
- General Contracting: He works for himself, and most subprime or credit union lenders require at least two years of business history.
- Since he has one year left, his income still counts, but some lenders may not count all of it if it will stop before the loan is paid off.
- Collateral: Lenders typically verify the truck’s value using sources such as NADA or KBB to ensure it matches the $24,000 owed.
If the amount owed is close to or slightly more than the truck’s value, lenders may request a down payment or, if possible, include some of the excess amount owed in the new loan.
The main concern is whether he can provide proof of his income and if the loan amount, compared to the truck’s value, meets subprime lender rules. People who are self-employed are often scrutinized more closely than regular employees, even when applying for car loans. and local credit unions require:
- At least 2 years in business (which he has).
- Recent tax returns or bank statements, along with a profit and loss statement showing actual earnings (not total sales).
Since the disability income only has 1 year left, some lenders will:
- Count all of it if the auto loan term is short, such as 24 to 36 months.
- Discount, or disregard, it if the auto loan term extends beyond the remaining disability period.
- Since his business is doing well with several clients, he should show proof through bank deposits or filed tax returns.
- Providing additional paperwork increases the likelihood that he will be approved, even with a 587 credit score and a history of divorce.
Ways to Transfer the Truck into His Name
There are three main options in this situation.
A. Refinance the existing truck loan directly into his name
- This is often the simplest option for homebuyers who meet the FHA debt-to-income ratio guidelines.
- He should look for auto refinancing from lenders or local credit unions in Rockford that offer loans to individuals with poor or less-than-perfect credit.
- If approved, the new lender pays off the current loan in her name.
- The original account closes, the title transfers, and he becomes legally responsible for the payment.
Factors that improve the chance of approval include:
- Document and show proof of all income, including self-employment and disability.
- He may need to choose a shorter loan and make a down payment to meet lender rules and set the payment amount.
- He should expect to pay a higher interest rate.
- The good part is that the debt will no longer appear on her credit report or be counted against her debt-to-income ratio.
B. Trade in the Sierra at a subprime dealer and finance a different vehicle
If the amount owed is more than what the truck is worth or if lenders do not want to refinance a 2016 vehicle with 109,000 miles for that amount, trading it in at a dealer may give more options.
- Many dealers in Rockford offer loans to individuals with poor credit and use ads that feature phrases like “bad credit ok,” “no credit,” or “previous bankruptcies or divorces ok.”
- These dealers will:
- Evaluate the Sierra and give a trade-in appraisal.
- Pay off the remaining amount.
- Any small extra amount owed can be added to his new loan, allowing him to purchase a different, possibly cheaper, car in his name only.
- For the mortgage, this resolves the issue because her old truck loan is now paid off and no longer counts against her debt-to-income ratio. her debt-to-income ratio.
C. Last resort: Buy Here Pay Here (BHPH). This can be a last resort, but it is available as an option.
A BHPH lot in Rockford could be used for a trade, or the vehicle could be sold privately to pay off her loan.
- He could also get a loan for another, usually cheaper, car directly from the dealer with little or no credit checks.
Major downsides include:
- Higher interest rates and overall costs;
- Smaller and older vehicles;
- More often, payment plans, like paying every week or every two weeks, and strict rules about taking the car back if payments are missed.
These financial and credit challenges may delay the home purchase process.
- A BHPH option should only be used if he cannot secure approval from credit unions or subprime lenders.
He should prepare these documents:
- Proof of 2 years in business, such as registration, 1099s, or invoices.
- Business and personal bank statements from the last 3 to 6 months, showing both incoming and outgoing transactions.
- The most recent filed tax return showing self-employment income.
- A VA disability award letter that lists the monthly amount and end date.
- Improve the credit profile by avoiding new late payments after the divorce is finalized.
- Only dispute old collections related to the divorce when necessary, as excessive disputes may concern auto and mortgage underwriters.
Focus on these types of lenders:
- Local credit unions that offer auto refinancing and work with people who have bad credit.
- Franchised dealers (like Ford or Chevy) that have subprime financing options.
- Independent dealers that offer subprime loans for bad credit, not just BHPH options.
From a mortgage perspective, the best outcome is:
- A refinance or trade that replaces the $24,000 Sierra loan in her name with a loan in his name.
- A payment he can afford, so he avoids future credit problems that could affect him.
- Once you provide an estimated trade-in value using KBB or NADA, I can calculate the negative equity.
- This will help determine whether refinancing, trading, or replacing is the better option. the better option.
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Can you please refer several non-prime auto finance companies in or nearby Rockford, Illinois who have a good reputation of working with people with less than perfect credit. Reason for bad credit and lower credit scores (587) is because of divorce which has been finally finalized a month ago. Self-employed general contractor and a former veteran of the U.S. Armed Forces. 2016 GMC Sierra 4 door pickup truck with 109,000 miles owing $24,000 purchased last June 2025l Has been timely on all payments since the purchase. It is under fiance name but he has been making all the payments and want to refinance under his own name and take fiance out due to fiance applying and qualifying for a home mortgage loan. Can you please also give me the market value of the truck as well as the loan value? Thank you.
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Refinancing a car loan can be challenging, but it is possible. The goal is to move the loan for the 2016 GMC Sierra from the client’s name to the fiancé’s name. Since the fiancé is self-employed, has a low credit score, some verifiable income, and is a veteran, the best approach is to look for lenders who consider more than just credit scores.
Here’s a step-by-step plan and an overview of possible lenders.
How Subprime Lending Operates for the Self-Employed
Obtaining a loan from a traditional bank can be challenging for self-employed individuals. Subprime lenders typically have more flexible rules and are more likely to approve loans based on the borrower’s ability to pay, rather than just their credit score.
Here’s what they will require for income verification:
- Proof of Business Operation: They require at least two years of self-employment, which he has.
- Income Documentation: He should gather 12 to 24 months of bank statements to demonstrate cash flow, along with a profit and loss statement and tax returns (Form 1040, Schedule C) to prove that his contracting business has a steady income.
- Debt-to-Income Ratio (DTI): Lenders will check his DTI.
- Steady income from his business and disability benefits should help keep this ratio in a good range, even if he has other debts.
His disability benefits from the U.S. Armed Forces are a plus. With at least one year of steady, verifiable income remaining, lenders will see this as a sign of stability, which will help his application.
Lender Options and Recommended Strategies
Given his 587 credit score, self-employment, and veteran status, the following options are most likely to help him get a refinancing loan for the truck.
Option 1:
- Community-Oriented Credit Unions
- Some credit unions have community-based initiatives that help individuals who struggle to access conventional banks.
- They take a more holistic approach, considering the whole person rather than just a number.
- Alternatives Federal Credit Union: This credit union assists community members in obtaining loans to enhance their financial situation.
- They understand lower credit scores and can help with refinancing.
- They should be the first place you contact.
Option 2:
- Military-Focused Lenders
- As a veteran, he can work with lenders who focus on helping veterans.
- These lenders are typically more flexible and understand the financial challenges associated with military service.
- Navy Federal Credit Union (NFCU): NFCU is recognized for its competitive pricing and has a large membership base.
- As a veteran, he is eligible to apply, and NFCU can process his application.
- Since he is on disability, offering him an auto refinance and working with him as a veteran is a suitable approach.
- PenFed Credit Union: PenFed offers large loans and focuses on serving the military community.
- Refinancing with them is a good option to consider.
- USAA: A USAA auto loan could be an option.
- They offer loans for older vehicles (the 2016 Sierra qualifies) and have programs for veterans.
- Contact them to see what terms they might offer, considering his full financial picture.
Option 3:
- Subprime Lenders and Specialized Dealerships.
- These lenders help people with credit challenges.
- They usually focus more on steady income and job stability than on credit scores.
- Auto Credit Express: This service connects individuals with credit issues to lenders and dealerships.
- They offer programs for veterans and work with subprime lenders who understand self-employed income.
- He can apply through them and get connected to a dealership in the Rockford area.
- Rockford Subprime Local Dealerships: Dealerships like Anderson Nissan in Rockford collaborate with subprime lenders and support all customers, regardless of their credit score.
- Their finance team partners with different lenders and may be able to help him get a loan using his income documents.
Why It’s A Good Idea to Have A Co-Signer
Most sources agree that if the borrower can’t get approved, having a co-signer with better credit can help secure a loan. Ideally, the fiancé will qualify on his own, but if not, a client or family member with good credit can co-sign. This can improve approval chances and help get a lower interest rate.
Steps to Take
- Getting Documents: The fiancé should gather these documents as soon as possible:
- Last two years of personal and business tax returns.
- Current year-to-date profit and loss statement for his contracting business.
- Last 12 to 24 months of personal and business bank statements.
- Proof of his award letter on disability benefits or the bank statements that show the deposits.
- His military service proof, DD-214, or other documentation.
Contact these lenders in this order:
- Start with Alternatives Federal Credit Union, as they specialize in helping individuals with low credit scores.
- Next, because he is a veteran, reach out to Navy Federal, PenFed, and USAA.
- If those options don’t work, apply with Auto Credit Express to get matched with a local subprime lender in Rockford.
- Then visit or call the finance department at a local subprime dealership, such as Anderson Nissan, which offers subprime financing.
Expect Higher Rates:
- With 587 a 587 credit score, the interest rate will be higher than for someone with good credit.
- The primary goal is to remove the truck from the client’s name.
- After making on-time payments for 12 to 24 months and improving his credit, he can try to refinance again for better terms.
- It is tough, but there is hope. His self-employment income and veteran benefits are positive factors that subprime lenders will take note of.
- With the right lenders and organized paperwork, he has a good chance of getting a subprime refinance.
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This reply was modified 2 months ago by Mark.
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Hi Gustan. Hello Miss Bailey. Firstly as someone concerned for your well being, I would definitely recommend avoiding a Buy Here/Pay Here. You should not judge a book by its cover but at first glance these operations oftentimes appear cash strapped. They are often in lower commercial rent areas so therefore will have probably just a sales office with poor signage and a small service area if any. Lastly their inventory will be mediocre. Sadly they do fill a niche, but these are all warning signs that they will not have the resources to help you if the air conditioning stops working in a week or to even report your on time payments to the bureaus.
As a former Finance Manager at a large branded dealership, I recommend that is where you go. Pick a couple of the largest in your area as they will have an inventory that likely will have what you need. And their captive bank (such as Ford Credit, Toyota Financial or GM) will probably find a way to get your fiance’s loan done. And they will have good rapport with other major banks up and down the credit sprectrum such as Capital One, Santander, and Wesltake. If you are buying their vehicle, they will find a way. Or go to the next place. You will have to flexible with down payment and term etc.
As for the truck you have now, hopefully you are equitable and can use it as part of the down. To keep your name off the new loan you can sell it to the dealership. Explain your situation and objectives. Tell the salesperson that greets you that you have a special financing situation to save time. Talk to his sales or finance manager right away to avoid too many handshakes. A good team can find the right vehicle that can absorb whatever negativity you might have. Cash always helps so be prepared. You might have to put a substantial down payment to get in an equitable position on the new truck to get your finace’s approval or more favorable terms for your budget. Try to find the newest truck that fits your needs. With your finace’s provable income, these guys should find a way. You might have to show common residency too.
For your fiance to refinance the truck you have now is not worth the effort and the banks will think so also. It has age and miles and does not present itself as decent collateral even for your current bank. But you can try them, threaten them with default if you have to. But don’t default of course.
Best of luck, keep us posted.
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Great information and advice. Fully agree on your recommendation and insight. I think the first step is to get the estimated value of his current vehicle
109,000 miles on a 2016 GMC SIERRA 4 DOOR 1500 4X4 PICKUP TRUCK is not a lot of miles
What website do you recommend to get a fair trade in value, wholesale value, and retail value? Would you recommend CarFax?
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I would add the fiancee as authorized user with a family or friend with low utilization credit limit and go to Experian.com and enroll to Experian Boost. Experian will calculate the timely payments non-traditional credit such as mobile phone bill, utilities, cable, insurance, and other non-traditional credit and report it to the credit bureaus. I would increase the fiancee credit scores and then apply to trade in the truck for something comparable but newer. Lower payment since lower interest rate, and longer amortization (this is possible since it will be a newer vehicle). Payment may be the same. I suggest to find out what the value of the 2016 GMC 1500 4 DOOR 4X4 PICKUP TRUCK.
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