That New Car Payment Will Cost You

If you're considering buying a home anytime in the near future, please think twice before purchasing your next car.   I've had a couple different scenarios lately where the car payment has really impacted the home buyers.  Don't get me wrong, I love cars.  Old and new alike.   Here's how it impacts your home purchasing power (based on a 6% mortgage interest rate amortized for 30 years):

Car payment $400 = $66,700 of home

Car payment $500 = $83,395 of home

Car payment $600 = $100, 075 of home

You need to decide which is more important to you, $600 car payment or being able to buy $100,000 more home.   The lower your income, the more dramatic the car payment impacts you.   So if you're Bill Gates...no sweat!  But if you're Bill Gates,  you're paying cash and you don't have a car payment, right?!

In addition, when you finance that nice new car, significantly zaps your credit score.   This is because it's a new debt at 100% of the credit line.   Credit scoring modules favor older established credit vs. new and you get dinged for have balances over 50% of the original loan amount/line limit (the same holds true for credit cards). 

I know there's nothing like that new car smell...but there's also nothing like "Home Sweet Home".

 

 
Posted by Rhonda Porter CMPS on 03/22/2007 08:56 AM   Comments (6)   , , ,  

6 Comments on That New Car Payment Will Cost You

Nice post.  So many times our customers don't think about their total debt load.  The debt to income ratio is one of the big factors in getting a loan approved.  

03/22/2007 10:20 AM by Ronnie Roach (Wells Fargo Home Mortgage)

And, I'm sure the car sales man isn't explaining how the monthly debt will reduce their home purchasing power.   Thanks, Ronnie!

03/22/2007 10:45 AM by Rhonda Porter CMPS (Mortgage Master Service Corp.)

Rhonda,

I recently had a client not able to qualify for a home.  His car was stolen, so they go out and purchase a new vehicle.  So now I know how much a car payment affects purchasing power.

Thanks 

05/08/2007 05:27 PM by Bruce Ching (Brio Realty)

It's much easier to qualify for a home if you can buy a car after the home has closed. 

05/08/2007 07:43 PM by Rhonda Porter CMPS (Mortgage Master Service Corp.)

Wow.  I always advise my clients that it can impact them, but this really shows the actual cost.   Thanks Rhonda.

05/08/2007 09:57 PM by Ginger Wilcox, Marin County Realtor (Pacific Union, Marin Real Estate)

I love cars as much as anybody...but when I see clients who just bought a new car with $600 a month payment and they're trying to qualify for a $350,000 house...ouch!  

05/08/2007 10:32 PM by Rhonda Porter CMPS (Mortgage Master Service Corp.)

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Loan Officer: Rhonda Porter CMPS (Mortgage Master Service Corp.)
Rhonda Porter CMPS
Seattle, WA
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Mortgage Master Service Corp.

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