Should I buy a car before buying my home?

I get questions like this all time. The simple answer is “probably not”. Financing big purchases before financing a home can often have an adverse affect on your debt-to-income ratio.  To put it simply, taking on a new car loan could increase the your total monthly debt payments. The general rule (although it can vary with some lenders) is that your total monthly debt payments shouldn’t exceed more than 33% of your gross income. Gross income is your income before taxes. Monthly debt includes payments you make on any revolving accounts such as credit cards or student loans. Lenders tend to look at the minimum monthly balance due as they are calculating your debt.

Here’s something to consider, if you’re buying your car with cash or even buying your home with cash, then the purchase may not affect your debt to income ratio at all. However, most home buyers finance these purchases. Another consideration to make is that shopping for a car loan can also impact your credit score. When you are purchasing a home, lenders will pull your credit report at the time of pre-approval, full loan application, and just before you close on your new home.

Are you thinking about buying a home, but also need to make another big purchase simultaneously? We have a ton of calculators that we can use to determine how this might affect you personally. Here’s a quick link if you want to look at your debt to income ratio: http://www.bankrate.com/brm/calc/ratio-debt-calculator.asp

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Filed under Information for Buyers, Real Estate

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