So you find you have managed to scrimp and save some money for a down cost on a house, have paid off your vehicle, and you also have found you have sufficient surplus monthly revenue for a new car payment. If you are in this position, and your car can still conduct to incur a few thousand more miles think keeping off on the buy of a new car. You may ask, "Why is this advisable?" The calculate is that most first-time homebuyers, and some veterans, do not know that your new car cost will directly sway your debt-to-income ratio.
Suppose for illustration sake, you had purchased the new car and you taste a loan officer to get pre-qualified for a mortgage loan. You state your desired price and how much you have managed to scrimp and save for the down payment. You furnish your revenue and may even furnish pay stubs and W2 forms. The loan officer methodically crunches the numbers (by telephone, in person, or even over the internet). And the loan officer promptly lets you know that you would have excellent for a higher home sales price if you didn't have "that expensive car payment!"
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You see, when determining your capability to qualify for a mortgage, in addition to your three-digit reputation score a lender looks at what is called your "debt-to-income" ratio.
A debt-to-income ratio is the percentage of your gross monthly revenue (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner's association fees, if any. It will also include your monthly consumer debt, including reputation cards, student loans, installment debt, and of course, car payments. Your debt-to-income ratio is the amount of debt you have in the form of mortgages, car loans, student loans and reputation card debt, as compared to your uncut income.
You might ask, "Why is this amount so important? I make a good revenue and I'm never late on my monthly payments, well only occasionally." What it comes down to is the amount of debt you have to pay on a monthly basis relative to your monthly income. You may bring in a hefty paycheck but have equally hefty debt payments which could be a problem. Or you may make a modest revenue but have low monthly debt payments. Your capability to qualify for a mortgage loan is unique to your single financial situation. That's why lenders look at this amount just as intimately as your Fico score.
To calculate your debt-to-income ratio, add up all of your monthly debt obligations-often called recurring debt-including your mortgage (principal, interest, taxes, and insurance) and home equity loan payments, car loans, student loans, your minimum monthly payments on any reputation card debt, and any other recurring loan payments you might have. Do not include expenses such as groceries, utilities and gas. Take this total and divide it by your gross revenue from all sources. If you want to try your hand at a debt-to-income ratio calculator, go to http://www.bankrate.com http://www.bankrate.com>, which has a great online tool to help you shape out your debt-to-income ratio.
Let's say you and your spouse together earn ,000 per year or ,000 per month. Your total mortgage cost is ,100 your car loan totals 0, your minimum reputation card payments are 0 and your student loans add up to 0. That equals a recurring debt of ,750 a month. Divide the ,750 by ,000 and you'll find your Dti is 35 percent.
In general, you'll want to keep that amount below 36 percent-a threshold that loan officers and reputation card issuers often use as a factor when they resolve how much they're willing to lend you. If you go higher than the above mentioned number, you may be able to qualify for a loan but ordinarily at higher interest rates and therefore higher monthly payments. The higher your Dti number, the riskier it is for lenders to offer you loans-and the more they'll make you pay for them.
Looking back at our example, suppose you earn 00 a month and you have a car cost of 0. Using an interest rate of 8.0%, you would qualify for a mortgage loan that was almost ,000 less than if you did not have that new car payment. Are you looking the point of keeping off on that new car?
So, if you have not already bought a new car, and your old one can still take a few thousand more miles, try to qualify for the home first which as an appreciating asset will bring you great tax savings, as well as a place to live in. You can forgo that "new car smell" for another time!
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Prospective Homeowner? Think Twice Before Buying A New Car Bankrate Mortgage Calculator
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