When You Want to Buy Things - Wait
When you start to make more money and begin to build up savings, you tend to find the desire to buy things start to creep up on you.
The desire to spend money.
In America, the land of freedom and opportunity we seem to have and insatiable infatuation with the car, it often becomes a top purchase priority on our lists. Then inevitably later, other things start showing up and it is very likely one of those things will be a house. Often times, by the time you think of purchasing a home, you have already bought the car. It happens all the time. When going through the application process the loan officer asks about your income, savings and debts, and sometimes that's when you find out you should have waited to purchase the car until after you have purchased the home, because it is keeping you from purchasing in the price point you want.
When a lender determines your ability to qualify for a mortgage loan, the lender looks at debt-to-income ratio (DTI). Your DTI tells them what the percentage of your gross monthly income (before taxes) that you spend on debt. This include your monthly house payment with principal, interest, taxes, insurance, and any homeowner’s association fees. It also include your monthly credit cards, student loans, installment debt, and, of course, the car payment.
How a New Car Payment Reduces Your Purchase Price
Here's how it works, lets say you make $5000 a month and your car payment is $400. At an interest rate of 6% on a thirty-year fixed rate loan; you would qualify for about $40,000 less than you would have it you had not purchased the car. In many cases you know you can afford both, however, mortgage companies have their own guidelines that they use to approve your mortgage. Don't let it keep you from purchasing a home, it is still a great investment, just take the time to get pre-qualified by a lender. If you have not yet bought a car, when you think about it, think ahead. Think about buying the home first because it is a much more important purchase when take into consideration your future financial well being.