You are ready to buy a house, and suddenly you also have a need to buy a car. Which one do you buy first the house or the car? On one hand it is nice to have the house, but maybe it can wait 2 months. On the other hand you need the car today, but the house seems like a more logical purchase?
This is not based off feelings or emotions. This is the hard facts. As we will discuss more in depth when we talk about DTI, there are certain things that can have a negative affect on you getting the mortgage. Specifically, any car payments wether it is a lease or if it is a loan for a car purchase will show up on your credit report as a DEBT.
Why is it debt, I didn’t miss a payment?
This is a very common question. The answer is just by being on your credit report changes you DTI (Debt to Income) ratio and lowers your income.
What does that mean?
Suppose you make $5,000 a month and the DTI ratio was 50% (made up numbers, it’s usually much lower) that means your entire PITI payments can’t be more then $2,500 a month (approximately a $370,000 mortgage in today’s rates). However, if you have a $500 car payment your income will drop to $4,500 which would lead to a $2,250 max monthly payment. This can drop the max loan you can take to (approximately a $360,000 mortgage in today’s rates)!
Yes, it can make that big of a difference. Therefore first buy that house, then you can go out and lease the car of your dreams. Buying that car first can cause you not to be able to be approved for a mortgage!
Although buying a car may seem more logical then buying a house. It is imperative that you buy the house first. A car will add additional debt, that will negatively affect your buying power.
And don’t forget to follow us on Twitter to be entered into our $50 Giveaway!
Buy the house before the car!