When Buying a New Car is NOT a Good Idea
Whether you’ve received a raise or have saved enough money to actually make a large purchase – it’s likely that you’re going to be affected by something that most individuals are affected with in the same situation – the desire to spend it. You might start going out to eat more often, buying clothes, gadgets and jewelry. You may even find yourself coveting a new vehicle. Some individuals think about purchasing a house, especially if they’re married or have children.
So, you decide to go ahead and purchase that home…or maybe move into a larger home if you already have one. You call your loan officer in order to get prequalified for a loan. You know about how much you want to spend and how much you want to put down on that home. You’ve given all your numbers (income, expenses, etc.) to your loan officer and you’re feeling pretty good about the impending purchase. The numbers are crunched and then your loan officer says the sentence you may not have been expecting…
“If only you didn’t have to worry about this car payment…”
This would come up because of your debt to income ratio. This means the percentage of your income before taxes that is already taken to pay debts – car payments, existing loans, etc. This is one of the things that every lender looks at when they’re determining whether or not to give you the loan you desire. A new car payment on your record will reduce the amount of money you have to purchase a house with.
While it may not seem like a lot (let’s assume your car payment is about $400 a month and you earn $5,000 a month), at an interest rate of 8.0% you would qualify for more than $50,000 less than you would if that car payment didn’t exist. Sure, you might tell your lender that you can handle the mortgage note and the car at the same time – but it doesn’t matter what you think – it’s what they think that determines the amount you’re prequalified for.
Now, this doesn’t mean that you shouldn’t get prequalified. You should. However, before you purchase that car you should think about that home. A home is more important when you’re considering your future, and especially if you’ve already got a car that’s nothing to sneeze at. You can always go for a new automobile purchase later after you’ve already purchased the home of your dreams.
In summary, while a new car purchase might be nice, the more important purchase (the house) will happen much more easily if you haven’t got the extra weight of a new car payment. Consider that and then make the wise choice on what to invest your money in.
About the Author:
I was born and raised in Central Toronto, spending my whole life in the neighborhoods that I now work, and in the Toronto Real Estate industry. I understand all the nuances of Toronto’s various communities & what Toronto real estate agents have to deal with.
I have dedicated my education to negotiating, marketing, business development and staying ahead of the curve with technology. I have attended international conferences, understand major agencies like Johnston and Daniel, all of which has helped me learn how I can provide more efficient, effective and thorough service.
