DOES LEASING A CAR AFFECT A BUYER’S ABILITY TO BUY A HOME?

As a mortgage professional for almost 20 years, I know just about every gotcha that can cause an underwriter to deny your loan. We look at monthly minimum obligations you pay on your debts. We take those minimum payments, including your proposed total mortgage payment (principal, interest, taxes, insurance, and private mortgage insurance), and then divide this by your gross income. This debt-to-income ratio is the barometer we use to determine your ability to repay the mortgage.

My wife, a college professor, texted me:

“My friend, who is a business/finance professor and contract attorney is insisting that leasing a car will not affect buying a home because it’s not debt… He says he also teaches Mortgage people this stuff.”

WIFE: “Can I tell him he’s wrong?”

ME: “Yes, he’s wrong. It’s debt!” 

WIFE: “LOL, I knew it! He is generally full of crap, but when he said that’s what he teaches in his classes, it made me pause.”

Imagine you have a $375/month car payment, which is nearly equivalent to $75,000 in spending power when buying a home. Or imagine you are a 2-car family spending $750/month on car loans. This reduces your buying power by $150,000. So instead of affording that charming $500,000 home, you have had your eye on, your max is only $350,000. As my clients know too well, this could hinder getting into that perfect neighborhood with the right schools and the short commute you so desperately want.

And here is the rub – a leased vehicle is even worse. Are you listening, Mr. Professor? Most of us know that when your lease period expires; you either lease again, or keep the leased vehicle with a large buyout (this could be money you need for your down payment or closing costs for a new home). Whereas with a conventional car loan, when you make your last scheduled payment, you own the car free and clear (aka no debt).

Also, in some circumstances, if you are a few months shy of paying off your auto loan, an underwriter will not hit you with the monthly auto debt and will not hold it against your ratios. You can see why the hair on the back of my neck jump to attention hearing this professor tell his many students that a car lease is not debt and will not affect their ability to buy a home. Rubbish!

This one financial decision can be the reason you miss that opportunity to get into your dream home. When something sounds too good to be true, it genuinely is too good to be true. My best advice is to sit down with a trusted mortgage professional before paying off any debt, or restructuring those credit card balances, and work through your debt-to-income ratios with someone who does this every day.

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3 ‘Must Know’ Pieces of Advice for First-time Home Buyers

3 'Must Know' Pieces of Advice for First-time Home BuyersWhen delving into the realities of homeownership in Sacramento, there can be many factors involved that make it difficult to determine what you need to know and what can wait until later. If you happen to be a first-time buyer who’s looking for the best tips for purchasing a home, look no further than the following three-pointers to set you on the right path.

Get Familiar With Your Credit Score

If you haven’t looked at your credit report for a long time, it can be a daunting task to request this information. Fortunately, your credit report is free from AnnualCreditReport.com and it will prepare you for what lenders are going to see. By taking this important step, you will be able to determine any delinquent accounts or balances owing that have gone to collections, and hopefully have these cleaned up before they can become a problem for your mortgage.

Determine The Price You Can Pay

While you may have a price in mind for what you’re willing to pay for a home, it’s important to determine your debt-to-income ratio before putting in an offer. Your DTI ratio can be determined by taking your total monthly costs, adding it to what you would be paying for a home and dividing it by your monthly gross income.

Organize Your Housing History

If you have a good history as a tenant, the next step will probably be the easiest of all, but it’s very important in order to prove you’re a responsible candidate for homeownership. Once you’ve acquired a Verification of Rent from any applicable landlord in the previous year, you’ll want to ensure that you have money in the bank. But don’t assume you need 20% down to get into your first home. Unfortunately, many first time homebuyers think they need this large down payment to qualify and that is just not true.

There are a lot of things to know when it comes to buying a home, but if you’re a first-time buyer the most important thing is to ensure that your finances are organized and that you’re not diving into more house than you can afford. By taking the time to determine your debt-to-income ratio and looking into your credit, you can ensure a positive first-time buying experience. If you’re wondering about homes for sale in your area, you may want to contact your trusted real estate professionals for more information.

Pros And Cons Of Making Biweekly Mortgage Payments

This is for sample purposes. Call me for your analysis.
This is for sample purposes. Call me for your analysis.

Have you ever considered paying off the mortgage on your home in two biweekly payments rather than one monthly payment? It might seem like this wouldn’t make a difference, but the truth is that biweekly payments really do add up more quickly.

Since there are 52 weeks in a year you will end up making 26 payments in total – which is equal to 13 months rather than 12. This means that your mortgage will be paid off more quickly and you will save money on interest payments in the long run. Continue reading “Pros And Cons Of Making Biweekly Mortgage Payments”

Watch Out for these Mortgage Application Deal-Killers

house-of-cardsThe mortgage process can be a lot like a house of cards. It is carefully, and painstakingly put together to build the perfect structure – or in this case, an approved loan. Then just as the ink is drying on your final loan papers, someone pulls the virtual card (aka deal killer) from the bottom and whoosh! – the house of cards and your loan come crashing down. A mortgage loan approval is never final until it’s funded.

Mortgages are made up of many moving parts, any of which might “go wrong” while your home loan is underway. We get so focused on getting the best interest rate, and we forget there is much more to this process than picking a loan officer, locking your rate and waiting 30 days till you close. Continue reading “Watch Out for these Mortgage Application Deal-Killers”

3 Simple Ways To Pay Down Your Home Mortgage Faster

3 Clever But Simple Ways to Get Your Home Mortgage Paid FasterPaying off the mortgage on your home faster means that you will not only have the satisfaction of owning your own home sooner, you will also have the benefit of paying much less in interest over the years.

The faster you pay off your mortgage, the more money you can save, so here are some tips to accelerate your payment schedule.

Continue reading “3 Simple Ways To Pay Down Your Home Mortgage Faster”