myrtle beach homes for sale


Buying a home? Then don’t buy a car!

If you’re like most people, the more money you earn, the more you want to spend. But if buying a home is even remotely in your future, you want to hold back on the spending, at least on cars, appliances and other big-ticket items bought on installment.


Whether you’re looking at a starter home or an oceanfront mansion, you’ll almost certainly need to first get prequalified for a loan. To a large factor, the amount of that loan depends on two things: how much you make and how much you owe. And while purchasing a new car may have seemed like a great idea just a few months ago, it loses its luster when you discover the car payment you made has seriously slashed the amount you can borrow.


Debt-to-Income Ratios
When determining your qualifications for a mortgage, a lender looks at your debt-to-income ratio; that’s the percentage of gross monthly income that is spent on debt. This includes all your consumer debt including mortgage payments, other housing costs, credit card debt, student loans, etc.


As an example of how added debt can affect a loan, let’s say you earn $5,000 monthly and have a $400 car payment. That payment means you would qualify for about $55,0000 less (at an 8 percent interest rate) than you would without the car payment. Of course if you’ve already bought a car, you can still get prequalified, just not for as much.


And while a car is used in this example, the same applies to other major purchases such as jewelry, vacations, furniture, expensive weddings, etc.


Don’t Be Moving Money Around
Another don’t when it comes to getting your finances in order to buy a home is moving money around. One of the things lenders are concerned about is where funds for your down payment and closing costs will be coming from. Toward that end, you’ll likely be asked for the last two or three months worth of statements for liquid assets – savings, checking, money market funds, CDs, mutual funds, etc. Large deposits, withdrawals or transfers between accounts may send up a red flag. And since you’ll likely need to provide a paper trails of deposits and withdrawals, getting all the deposit receipts, canceled checks and other information can be time-consuming and tedious. By not moving money around, you’re making it substantially easier on yourself and the lender.

Take care when changing jobs
While changing jobs won’t affect the ability of most people to qualify for a loan, for some it can be disastrous. Since salaried employees typically don’t earn extra income from bonuses, overtime or commissions, changing jobs (for the same or better bay) won’t likely affect their qualifying for a mortgage loan, if they are working for approximately the same amount of pay when compared to living expenses. The same is true for hourly employees.


For commissioned employees, however, a job change can have a dire effect on how much loan they qualify for. Because lenders calculate income by averaging commissions over two years, you’re likely to have fewer commissions to average when getting started with a new company. Even if you’re selling a similar product or service as your old job, a job change creates uncertainty about future commissions.


Finally, if you’re considering buying a house and also considering self-employment, don’t do it. Lenders want to see at least two years of income from self-employment.

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