Why You Should Not Buy a Car
When you get a raise or accumulate some savings, you may
find yourself confronted by an innate instinct of modern
civilized men and women.
The desire to spend money.
It begins simply, by going out to restaurants, then accelerates
to purchasing clothing, electronic gadgets, and since North
Americans have a special fondness for the automobile, you
may even buy a "brand new car."
If you're married or ambitious, a few months later your
thoughts eventually turn toward buying your own home. Or
a move-up home, if you are already a homeowner.
Next, you contact a loan officer to get prequalified for
a mortgage loan. You state your desired price and how much
you can put down. You provide your income and may even supply
pay stubs and W2 forms. The loan officer methodically crunches
the numbers (by telephone, in person, or even over the internet).
"If only you didn't have this car payment..."
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. 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.
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.
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Myrtle
Beach Real
Estate
