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Ask Dave

Lose The Payments To Refinance

Jim is trying to refinance his home, and he's being told his debt-to-income ratio is too high. His mother-in-law also has $35,000 in credit card debt—in Jim's name. What does he do now?

QUESTION: Jim in Birmingham is trying to refinance his home, and he’s being told his debt-to-income ratio is too high. His mother-in-law also has $35,000 in credit card debt—in Jim’s name. He’s been working the debt snowball, so what does he do now? Dave thinks Jim needs to sell a car to get rid of that payment.

ANSWER: That’s called identity theft. You’re not liable for that if you didn’t sign for it. Borrowing $35,000 in my name causes a lot of conflict. There’s some conflict. It’s called a thief. Your mother-in-law is a bank robber. I think we found the problem of your debt-to-income ratio.

You probably could solve it by selling your car and getting rid of the $450 payment. I guess that would get it down to where you could refinance. You do need to do a refi at your interest rate.

The bottom line is what your debt-to-income ratio is what they call a high side and a low side. The high-side ratio is all of your debt payments, including your house payment, car payment, and everything. Your low-side ratio—and that’s as a ratio to your income—is just your house payment to your income. They look at both of those ratios, and I assume that’s what they’re talking about, because you’ve got such a heavy credit card balance that you’re responsibile for plus that car payment. They’re looking at that and assuming you’re not making it. I’m guessing that if you got rid of the $450 car payment, you’d make it. It’s not as much the amount of debt as it is the actual payment. My guess is your payment on those cards isn’t much more than your car payment.

I’d pay the car off. I’d work your debt snowball straight up. I’m thinking if you got that car paid off, it changes your monthly payment debt ratios, and I think that that’s probably going to be the bigger concern. I could be wrong, but I’m thinking selling the car or getting the car paid off should get you in a position to do this. I’m a little bit scared of waiting six months if I were you. These are the best interest rates in 50 years, and I don’t know how long they’re going to last. If I was out there right now and had any way I could refinance, I would, including selling your car.