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Debt-to-Income Ratios and Car Payments
You see,
when determining your ability to qualify for a mortgage, a
lender looks at what is called your "debt-to-income"
ratio. A debt-to-income ratio is the percentage of your
gross monthly income (before taxes) that you spend on
debt. This will include your monthly housing costs,
including principal, interest, taxes, insurance, and
homeowner's association fees, if any. It will also include
your monthly consumer debt, including credit cards,
student loans, installment debt, and...
...car
payments.
How
a New Car Payment Reduces Your Purchase Price
For example, suppose you
earn $5000 a month and you have a car payment of $400. At current
interest rates (approximately 8% on a thirty-year fixed rate loan), you
would qualify for approximately $55,000 less than if you did not have
the car payment.
Even if you feel you can
afford the car payment, mortgage companies approve your mortgage based
on their guidelines, not yours. Do not get discouraged, however. You
should still take the time to get pre-qualified by a lender.
However, if you have not
already bought a car, remember one thing. Whenever the thought of buying
a car enters your mind, think ahead. Think about buying a home first.
Buying a home is a much more important purchase when considering your
future financial well being.
Do not buy
the car. Buy the house first.
copyright
2006 by Terry
Light and RealEstate ABC |
