If you’re considering buying a home anytime in the near future, please think twice before purchasing your next car. I’ve had a couple different scenarios lately where the car payment has really impacted the home buyers. Don’t get me wrong, I love cars. Old and new alike. Here’s how it impacts your home purchasing power (based on a 6% mortgage interest rate amortized for 30 years):
Car payment $400 = $66,700 of home
Car payment $500 = $83,395 of home
Car payment $600 = $100, 075 of home
You need to decide which is more important to you, $600 car payment or being able to buy $100,000 more home. The lower your income, the more dramatic the car payment impacts you. So if you’re Bill Gates…no sweat! But if you’re Bill Gates, you’re paying cash and you don’t have a car payment, right?!
In addition, when you finance that nice new car, significantly zaps your credit score. This is because it’s a new debt at 100% of the credit line. Credit scoring modules favor older established credit vs. new and you get dinged for have balances over 50% of the original loan amount/line limit (the same holds true for credit cards). So if you’re trading in a car with a loan that you’ve been paying on time, having that old debt paid off also dings your credit score.
I know there’s nothing like that new car smell…but there’s also nothing like “Home Sweet Home”.
PS: If you are considering buying or refinancing a home located anywhere in Washington state, I am happy to help you! Click here for a no-hassle mortgage rate quote.