Don’t do it!
Don’t make any large purchases while you are house-hunting or in escrow!
Your ability to obtain financing for a new home is a delicate and tricky thing. Once you have worked with a lender and have your pre-approval for a mortgage, it is important to not make any changes in your financial situation.
Lenders allow about 40% of your total monthly income to be dedicated to “all financial obligations”. Let’s break that down a bit:
Let’s say that you make $6,000 per month.
40% of your monthly pay = $2,400
So that $2,400 (40% of your income) has to be able to pay all of your monthly expenses. those expenses include:
- Mortgage payment
- Car payment
- Student Loan minimum payments
- Credit card minimum payments
So, if you currently have no car payment, student loan payment of $300 per month and no other debts, then you can qualify for a total monthly mortgage payment of $2,100. That is roughly a loan amount of $440,000.
If you suddenly add a car payment of $400 per month, your new allowable mortgage payment will be $1,700. That is the loan amount for a $350,000 loan.
Essentially, by purchasing a car, you have reduced the amount the lender is willing to loan you by $90,000. That is a HUGE amount.
So, think twice before making any large purchases. What is more important??? A new home or a new car?