If you’ve already been pre-approved for a home mortgage loan, your loan officer will have told you not to do anything that will change your financial picture.
That includes making any large purchases, obtaining new credit for any reason, co-signing a loan, or changing employment.
However, if you’re still in the thinking stages about making a home purchase, you should follow the same advice.
When deciding whether you qualify for a home loan – and what interest rate you might be offered – lenders look at your financial history. They want to see that you’re stable and have a proven track record of meeting your financial obligations on time.
Any new financial obligation is risky, and in many cases, a car loan is a sizeable obligation.
Your credit score is one of the first factors lenders consider when analyzing your loan prospects.
That score goes up and down based on your payment history – and one of the factors is the length of time you’ve been making payments to each creditor. The longer the better, so a 5-year-old car loan might raise your scores, while a new loan will lower them.
In fact, any new obligation will lower your scores, at least temporarily.
Depending upon the lender and the size of the monthly obligation, it will take from 2 to 6 months before your credit scores will return to their previous levels.
After 6 months, your on-time payments may serve to raise your credit scores.
To stay on the safe side – if you’re thinking of a home purchase within the next 6 months, it is in your best interests to postpone both the car purchase and any other new obligation.
Debt-to-income ratio is another determining factor.
You probably have a budget that tells you what you can and can’t afford to purchase each month. To calculate that budget you start with your projected income, deduct your fixed expenses, and see what is left over for food, clothing, entertainment, and other optional purchases.
Your lender does much the same thing, except the lender calculates the percentages.
This is called debt-to-income ratio. It is calculated by dividing your monthly obligations by your pre-tax monthly income. While different lenders use different guidelines, in general, the overall percentage should be no more than 36%. Of that, your monthly housing costs should be no greater than 28%.
For example, if you earn $3,000 per month, your monthly housing cost should be no more than $840. Your entire debt load, including credit cards, car loans, school loans, etc. should be no more than $1,080.
If you really need that new car…
Talk with your mortgage lender before taking any action. See where you stand at the moment and get his or her advice on how to proceed. Find out how that new obligation would affect your chance of obtaining a home mortgage loan – and how it would affect the interest rate you’d be offered.
Informed decisions are the best decisions, so get the facts before you proceed.
The Mike Closer Group is here to help.
We at Homewood Mortgage, the Mike Clover Group, will be happy to give you the facts and advice you need to make a good decision. We’ll also be happy to get you pre-approved for a mortgage loan, so you can shop with confidence.
Call us today at 800-223-7409