Car Payment vs Mortgage Payment

December 17, 2020 | Posted by: Sherry Corbitt

Before you drive, think about your future buy!

A common roadblock we hit with our clients is that their car payment is hindering their purchasing power when they want to buy a home. We have seen car payments that will be more than the mortgage payment, so unless you want to sleep in your car, maybe we should run some numbers for you before the ink dries on the new car loan.

Here is a scenario:

If a couple earn $104,000 income annually combined and have no debts, they can approximately purchase for $500,000 with $25,000 down payment (property taxes, condo fees and credit scores not taken into account for this scenario). Now, if the same couple have a $800 car payment per month that would lower the same approval to $435,000 (same down payment and same income). That car payment of $800 per month is equal to $65,000 purchasing power in your mortgage approval.

‘But Sherry…I need a car!’

I’m not saying take the bus…but you can be more mindful of how a large payment will affect your future plans. Can you purchase lower? Put more deposit on the car? Extend the payment years to lower the monthly payment? There are lots of ways to make this payment work in your budget.

Mortgage Underwriter Tip: You may be paying weekly or, more commonly, biweekly and think geez my $350 payment biweekly is $700 a month…WRONG! $350 x 26 biweekly payments a year is $9100 annually. $9100 divide by 12 months is a true payment of $758.33 per month…not $700. That $58.33 may seem small but just understand it is increasing your debt vs income ratio gap.

Also be mindful of co-signing for a vehicle for someone else. That car payment will show up on your credit bureau and even if you don’t drive it, that vehicle payment is your responsibility and it will affect your mortgage approval.

We’d be happy to run a scenario for your particular needs to make both buying a vehicle and a home a reality!

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