CarB4House_052317

If you’re planning on buying a home, you have an empowering journey ahead that can provide long-lasting benefits.

Whether it’s six months or a year before you buy a home, it’s important to have your finances in order. We recommend improving your credit (most importantly, always pay your bill on time), following a budget, and establishing the home price you can afford.

All of these things take time and commitment, and can result in you getting a better interest rate. However, much of your effort can instantly be un-done by one single action: shopping for a car.

Let’s discuss why.

Auto shopping often includes running a credit report, which lowers your credit rating
While casually shopping for cars, customers are sometimes persuaded by motivated auto salespeople into pulling a credit report.

If you’re planning on buying a home, resist anyone trying to run your credit. This single credit check can instantly lower your credit score by 50 points for several months. Because a minimum 620 credit score is required for most mortgages, this temporary credit hit could negatively impact your chances of being approved.

If you’ve already applied for a mortgage, the additional credit check can also require you to re-submit your entire application.

Mortgage companies also closely analyze your debt
When you apply for a mortgage, your mortgage lender will closely analyze your debt-to-income ratio (DTI). DTI is the percentage achieved by dividing your monthly liabilities (such auto loans and credit cards) by your gross monthly income.

Because most banks and lenders allow borrowers to have a maximum DTI of 43%, it’s critical to limit any new debt before applying for a mortgage. Purchasing a car can instantly raise your DTI above 43% and cause your mortgage application to be rejected.

Try to avoid making large purchases before buying a home
Buying a home is one of your biggest life decisions. Since it takes most customers 30 years to pay back a mortgage, mortgage lenders need confidence that you’ll be able to complete years of monthly payments before lending you the money.

This makes it important to avoid shopping for cars and making large purchases three to four months before buying a home.

If you have questions about this blog or are interested in a mortgage, contact me today! 

 

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