If you are buying a home you have probably heard that it’s hard to qualify for a mortgage, even for people with very good credit profiles. Many future buyers in St. Charles are often moving out from Chicago and say they’ll have to acquire a second car as part of their move to the ‘burbs. Is it better for a future home buyer to buy or lease a new car?
There’s plenty of online material to help you choose your optimal path, but this 3-minute piece from NBC’s The Today Show serves as an excellent summary with the following points:
- Leasing allows you to drive a car that may be “too expensive” to purchase
- Leasing puts you in a new car, with the latest safety features and gadgets, every few years
- Buying a car means that you have no mileage limits, and can sell at any time
For many people, it concludes, buying a car is preferable to leasing one, with a notable exception being those people who can claim their car or truck as a tax deduction.
However leasing a car can invite mortgage approval trouble. This is because a car lease payment is assumed by a mortgage underwriter to be a perpetual debt; one that never reduces or gets extinguished. When a lease is complete, it must be replaced with a new lease, and so on.
Therefore, no matter how many payments remain in a lease, mortgage applicants must use the full car lease payment for purposes of a mortgage approval.
By contrast, for people whom are owners of their automobiles, car payments must only be added to debt ratios if more than 10 car payments remain until the car’s loan is paid-in-full. For homeowners and buyers in St. Charles, this can improve debt-to-income ratios and support a higher purchase price on a home.
Dan Cowart of Baird&Warner Financial Services helps people develop their credit profile so that they can purchase a new home at the best possible terms in the future. If you’d like to talk to either of us about buying a home in St. Charles, please call me at (630)945-7935 or Contact Me.