Tips for buying a new car when you also want to buy a house may sound like an odd title for a blog, but it is subject that needs to be addressed. In the last week, I have talked with three first time home buyers that are anxious to own their home.
As we discussed income, employment, savings and liabilities a great big red flag went up. Everything was looking good until we came to the car payment. In some cases, the car payment was as much as 30% of the gross income. This leaves very little for a mortgage payment and other debts.
I feel it is my responsibility to set my clients up for success. There is no way this is going to have a happy ending. When you want to buy a home you have to look at the numbers. The credit score, the monthly income, and the debts.
Ideally, you want your housing payment to be no more than 30% of your gross income and your debts to be more than 45% including the new housing payment.
As an example, if you make $3000 per month, your total housing payment should be no more than $1000. This includes principal, interest, taxes, insurance, mortgage insurance (if any) and homeowner's dues. In this same example, your total debts as outlined above should be no more than $1350.
That means that new car payment cannot be more than $350 providing there are no other loans or credit card debt.
If you are looking for a car and also want to buy a home, be conservative. If you don't, the home of your dreams may just turn out to be that new car.
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