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| Debt-to-Income Ratios and Car Payments |
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sheilamj writes, "Why you should not buy a car, before purchasing a house..."
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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 anything that would show up on your credit report.
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. Using an interest rate of 8.0%, 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. This way you will know you price range when shopping for your home.
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.
About Sheila Johnson
Sheila Johnson is a Licensed Real Estate Agent in the state of California. She’s been an active Realtor & Investor for many years. She actively expands her knowledge, to bring her clients the most value, by taking ongoing training with board certified schools.
Contacting Her
You can contact her by email at: sheilamj@earthlink.net
Or by phone at: (323) 683-8810
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Posted on May 14, 2008 16:33pm.
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