So you want to buy a vehicle **and** a house - which first?

Nice vehicle=smaller house

What if you knew up front that a nice new vehicle means a smaller / older house?  Would you still buy one? Would you want to know that before you signed that auto-loan agreement?  I hope so!

When positioning your finances to buy a house (or refinance) it is important to understand how your monthly debt obligations affect your ability to qualify for a mortgage. It is a must to understand that your entire monthly debt load including a mortgage payment plus all your other debt payments (car loans or leases, credit card payments, lines of credit payments etc.) cannot exceed 42% of your before-tax provable household income.  This is called your Total Debt Servicing Ratio or TDSR.  I like to call it, more simply, your debt to income ratio.

If you like professional sports analogies, consider this rule to be like a salary cap, which is the limit on the amount of money a team can spend on player salaries. When you are "capped out" you can't take on any more players/salary obligations without getting rid of someone!  Same as with mortgage finances.  If you have too much debt already, the bank limits how much more you can take on (ie. the size of your next mortgage).  No more moneyIf you use up your "cap space" on a new vehicle, you might not have enough left over for much of a house payment. And a smaller mortgage payment mathematically means less of a house or could keep you out of the housing market altogether!

Did you know that, at today's mortgage rates, a $450/month car payment could reduce the mortgage you can qualify for by $100,000? 

So if you are thinking of a vehicle purchase **and** a house, have a pre-approval discussion first.  We can help.

If you'd like to post a comment with an example or question, I will respond so that everyone can see and benefit from your question or comment.