If you are thinking about buying a new house you need to think carefully about big purchases, like buying a new car.
We worked with a very nice couple this weekend who are ready to buy a house in Las Cruces. They were upset because they didn't qualify for as much as they thought they could afford. It turns out that two months ago they bought a new car. The wife had just received a huge raise at her job, and they started upgrading their lifestyle. First they bought her a new car (and she deserved it). Then they started thinking about moving into a new house.
Now they know that they had their priorities wrong.
When you consider buying a home, the first thing you must consider is, can you afford to buy the home that you want?
The price of the home that you can afford to buy is the amount that your lender says you are "qualified to borrow," plus the amount of your down payment. In today's environment, Affordability and Loan Qualification are based strictly on your income and your expenses.
The lender calculates the percentage of your total gross monthly of income (before taxes) vs. the amount of total recurring monthly expenses (your debts). Most lenders today will loan amount of money that will produce a total monthly debt that is about 36% of your monthly gross income. Remember the total debt is your new monthly mortgage expense ( principal, interest, taxes, insurance), plus all recurring monthly expenses (student loans, credit cards, and any other payments... like that new car)
Here is the car / any other major expense problem. Suppose you earn $3000 a month and you have an existing car payment of $300. If you buy a new car and that payment goes up to, say $400 then your debt-to-income ratio just increased significantly and the amount of mortgage you qualify for is reduced. Think ahead, if a new home is in your plans, buy the home first, and then consider other major purchases.
Since understanding all the steps involved in the Home Buying Process and Home financing process are crucial, we have created a website dedicated to this: BuyingAHomeInLasCruces.com with extensive information and resources. In addition you will find our Step by Step Guides to Home Buying and Home Financing. The first chapter in both guides deals with whether you can afford to buy a home, and how much you can afford, and you will find a great Affordability Calculator in our resources section. (Learn what you can qualify for. See what your mortgage payment would be. Change down payments and debts, and see what happens to how much you can qualify for.)
We are looking forward to hearing from you. We’d love the chance to assist you with buying a home in Las Cruces. In the meanwhile, use all of our resources linked above independently without hassle, and whenever you want any information or assistance Contact us.
Next time we'll pick up this conversation and talk about more things that you want to avoid if you are thinking about buying a new home.
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