Stop! Don't Buy that New Car if You Want to Buy a New Home Too
If you watch any television or cable, chances are you see lots of ads for new and improved cars. You can choose from SUVs and sleek convertibles, mom mobiles and luxury sedans. Regardless of what defines your heart's desire, the one constant is a big price tag. Face it - new cars are expensive. Unfortunately, most of us need a car to travel to and from work, run errands and take their kids to after-school activities.
You may be thinking of a new car - after all, they are advertised CONSTANTLY on television. It is hard to tell some times whether you are watching a sporting event on television, or just constant streaming of ads for new cars.
But slow down. While you may want a new car - do you want a new home even more. You can have both, but it has to be in the right sequence.
How a New Car Loan Could Affect Your Ability to Get a Mortgage
When you apply for a mortgage, a lender will consider your debt-to-income (DTI) ratio, which is the total cost of car, student and other loans, as well as credit card bills and other debts. Most lenders don’t want a borrower to have a DTI ratio above 35 percent of gross income. In other words, imagine if you earn $10,000 a month and you have a student loan payment of $500 a month, twenty three hundred dollars a month in credit card debt - and now you have bought yourself a car with a monthly payment of $900. total debt is $3700 a month - or 37% of your income. Under this scenario, if you buy a new car with a high monthly payment and have other debt, your DTI ratio might be too high to qualify for a mortgage, or a lender might approve you for an amount that’s too low to buy a house in your area, unless you come up with a huge down payment.To qualify for a mortgage at a low interest rate, you’ll need your credit to be in the best shape it can be. A new car loan would lower your credit score temporarily because of a hard inquiry when the lender checked your credit report, as well as the increased debt load. Making auto loan payments on time each month could raise your score, but that could be a long process.
Consider a Used Car
If your car is on its last legs and you need to replace it, consider purchasing a used vehicle. Since cars depreciate quickly, a car that’s one or two years old would cost significantly less than a new one, but it would likely have low miles, be in excellent condition and still be covered by a warranty. You could get a reliable vehicle with a much lower payment than you would with a new one, and you would pay less for car insurance. Your debt-to-income ratio would be lower than it would be if you bought a new car, and you’d be able to qualify for a bigger mortgage and buy the house you wanted.Prioritize Large Purchases
If you want to replace your car and buy a home, you’d be better off focusing on a house first. Since a home is probably the largest purchase you’ll ever make, you want to be sure that your credit score is as high as possible and that a lender will be confident in your ability to pay a mortgage. If you can’t put off replacing your vehicle, buy one used to keep your debt obligations down so you can qualify for a mortgage to purchase your dream home. If you are in the market for a new home in the DC metro area, just give the LIse Howe Group a call at 240-401-5577!If you are looking for a home in the DC metro area, you know there is more to the process than just picking a property and making an offer. You need to find the best location for your wants and needs, get a great price, and work with a lender who will make your life easier - not harder. Trust your search with a Realtor who is licensed in DC, MD and VA and really knows the city and all its secret neighborhoods.
Start your search with the Lise Howe Group, Washington Natives who love the city and all its quirkiness! If you are moving or relocating to Washington DC, be sure to ask for our relocation guide. Call us at 240-401-5577 to schedule an appointment or email us at lise@lisehowe.com. Too excited to wait to talk to us about a great home? Just click here to start that home search.
If you want to see what is for sale in Washington DC, Chevy Chase and Bethesda, check out these links below:
Bethesda Single Family Luxury Homes
Bethesda Single Family Homes Under $1 Million
Chevy Chase Single Family Luxury Homes
Chevy Chase Single Family Homes Under $1 Million
Luxury Single Family Washington DC Homes
Washington DC Single Family Homes Under $1 Million
Lise Howe
Keller Williams Capital Properties
4646 40th St NW
Washington DC 20016
240-401-5577 (24 hour direct)
Licensed in DC, MD, and VA
Associate Broker, GRI, ABR, CRS
The Lise Howe Group
Howe Real Estate Should Be!
www.lisehowegroup.com
