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Buying A New Car Impacts The Ability To Buy A New Home

By
Mortgage and Lending with CrossCountry Mortgage, LLC NMLS #3029 NMLS #126036

Those who are in the process of buying a new home need to be aware of some of the factors that might influence their ability to do so. Even though credit score, income, and assets will play major roles in whether or not someone might be approved for a loan, there are other factors that will play a role as well.

Buying a new car might even have an impact on the homebuying process.

Why is this the case?

The Debt Payments On The Car Will Play A Role

There are multiple ways to buy a car. Some people elect to pay cash for the entire vehicle. While this is a challenge for most families, this will prevent any new debt from being added to the family’s finances. At the same time, this could also reduce the amount of cash the family has on hand to put toward the new home.

Most families end up putting a down payment on a car and taking out a loan for the rest. While this is a financially responsible decision, this can also make it harder to purchase a new home. This is because the payments on the car are going to be added to the family’s existing debt. A potential lender is going to see these debt payments and reduce the amount of money they are willing to provide. This could make it hard for a family to purchase their dream home.

Factor In The Cost Of The Car

Those who need a new car need to factor the monthly cost of the car into the home buying equation. For example, if the monthly payments on the car are going to be $200, then this is $200 less that the family can afford for the mortgage payment. The same math has to be done by removing the down payment for the car from the potential down payment on the house.

Do The Math Carefully

People need cars to get around in most parts of the country. At the same time, the financially responsible decision is to take the cost of the car and deduct this from the assets that are available to pay for the home to avoid any surprises. The lender is going to do the same thing.

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For help or questions contact:

Joe Gonzalez

Senior Loan Consultant -  NMLS #126036
GMH Mortgage Services, LLC
625 W. Ridge Pike, Building C, Suite 100 | Conshohocken, PA  19428 | Direct: 610-355-8039 |  Cell: 610-739-6563

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Gwen Banta
Sotheby's International Realty - Los Angeles, CA

I once had a client who bought a car in the middle of escrow. A Ferrari! He made a lot of money and was shocked that his loan was refused.  Duh!

Sep 17, 2020 02:53 PM
Gwen Banta
Sotheby's International Realty - Los Angeles, CA

Joe, perhaps a post on how Debt Ratio is calsulated would also be helpful to many. I know many agents print the posts for their clients, as I do. Thank you!

Sep 17, 2020 02:55 PM
Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI
HomeSmart Real Estate - Scottsdale, AZ
Arizona Homes and Land Group/ Buy or Sell

Roger that. I tell my clients don't buy anything except groceries when getting your loan approved and while searching for a home. Jeff 

Sep 17, 2020 05:47 PM
George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Joe Gonzalez you a very good point.  In fact anything that will an increase the monthly debt will reduce the purchasing power for a home.

Sep 17, 2020 06:38 PM
Carol Culkin
Diamond Partners Inc - Overland Park, KS
Overland Park Residential Real Estate

It's the total debt to income factor, many people assume this only refers to the mortgage debt. Very good point here.  

Sep 17, 2020 10:22 PM
Realtyna Inc
Realtyna - Newark, DE
WordPress Real Estate - IDX, RESO Web API, CRM

Hi Joe, good blog! This is a helpful reminder of the challenges of new debt during the homebuying process.

Sep 18, 2020 02:14 AM
Potranco Realty
Potranco Realty - San Antonio, TX
"Sold with Potranco Realty"

One of Realtors Cardinal Rules for buyers is NEVER open new lines of credit of any kind prior to buying a home..... great blog post to remind everyone.

Sep 18, 2020 02:46 AM
Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Sep 18, 2020 03:33 AM