Quick Tip Tuesday – Don’t Buy That Car!

Don’t do it!

QTT - Don't buy a car

Watch this 47 second video on my thoughts

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
  • etc.

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?

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