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Thinking of purchasing or leasing a new car? Let me so some quick math for you. A $400.00 payment will reduce your total mortgage qualification by $100,000.00 OUCH!
I will confess that I think about new cars for at least a moment or two regularly. Fast cars and I go back a few decades when I hit ‘mid-life’ temptations abounded. Apparently there are 265 new car models to choose from, so many cars so little time. I don’t feel old but I do recall when most manufactures had three models to choose from, autos, a few SUVs, and vans (mini-vans hadn’t been invented yet). Never mind the wide variety of niches being filled with Hybrid-this and crossover-that.
Once upon a time BMW offered 3, 5 & 7 series. Today they offer 1, 2, 3, 4, 5, 6, 7, 8, i, X, Z etc…and Honda as recently as the early 90’s was three models. Whatever happened to the prelude? So…What does this have to do with mortgage financing?
The simple math is this;
• $13,000.00 of consumer debt (credit card, line of credit) OR
• A student loan payment of $400.00 per month OR
• A Monthly car payment of $400.00 (Lease or Finance)
Will eliminate $100,000.00 of mortgage money from what one would otherwise qualify for. Nice car, nice digs…tough to finance both. Tougher still to finance the car before the home. The moral of the story is this:
1. Eliminate debt from your life (and take on NO new debt).
2. If you are incorporated be sure to have the actual payments flowing directly from your corporate bank accounts to the leasing or car loan company. This can reduce the impact in most cases.
3. If you must personally lease or finance a new car do so after settling into your new home and make certain your budget can handle it.
Qualifying for a mortgage involves a rigorous review of your debt servicing abilities so you are largely ‘protected from yourself’, however qualifying for a vehicle requires little more than a pulse. You are the master of your own demise when it comes to consumer debt.
There is little to no oversight. Personally, I have yet to see clients in foreclosure over a mortgage payment alone. Usually it’s the vehicle, boat, RV, credit cards, or unsecured line of credit that all came after the mortgage that are the problem. Debt is the enemy but at least mortgage debt is attached to an appreciating asset and currently you are experiencing record low interest rates. Which one will more comfortably sleep a family of four?