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Market Conditions, Current Issues, and Exciting Events in Real Estate for Huntsville Alabama and Surrounding Areas

Huntsville Home Buyer Questions: Consumer Real Estate Tips!!

Posted by huntsvillerealestateinfo on April 29, 2008

Huntsville Home Buyer Questions:  Consumer Real Estate Tips!!

Huntsville Real Estate Blog

Whenever I get questions from consumers I always come back and try to share with others.  I had a situation with a potential buyer and a mortgage officer that I wanted to share with you all.  I decided this would be good to share for those interested in buying a home, not only in Huntsville, but any where.  This post will address the subject of debt-to-income ratios.  A common term that many may not be completely familiar with the definition and significance in the home buying process.

Debt-to-Income Ratio

Do you understand the term “debt-to-income ratio”?  Hopefully this will shed more light on this term:

Well, this is a comparison of your gross monthly income (before tax income) with the amount of your monthly debt.  Your monthly costs can include things like your housing, car payments, credit cards, student loans, installment debt, etc.  This total is weighed in ratio with the amount of gross income you receive monthly.  This is a very important aspect of your approval to purchase a new home.  So just in case you’re wondering what’s the big deal?… here is a real life application!

The problem we ran into on a recent transaction was the buyer went to a mortgage professional and got pre-approved for a mortgage for a certain amount.  We look for months for “the perfect house” and we finally find one that seem to fit the bill.  So we go back to the mortgage professional and let them know that we are ready to move forward and make an offer.   To make a long story short, this buyer “forgot” to tell me and the mortgage professional that they went out and got a new car.  However, this showed up on a subsequent credit report that the mortgage professional pulled for the buyers.

Normally I would be really happy for someone to get a new car that they had been wanting… this time the problem is that this new car payment just increased their debt-to-income ratio.  Now they are no longer qualified for this new house that they now love because the car payment raised the debt-to-income ratio to a point that it lowered the amount for which they qualify for the new home. 

The jury is still out on how this situation will end but I think its important to consider the big picture.    The problem is that mortgage guidelines have strict rules that could affect your approval even if you think you are able to afford the car payment and the new house payment.  A home purchase is probably one of the most important decisions that you could make.  It is an asset that could really make a difference in your financial future.  Each situation is different and there is not always an easy answer to this dilemna but I normally advise getting the home purchase out of the way and then make any other purchases as you can afford.  I hope this was helpful. 

If you are considering making some new purchases including a new house, give our team a call and let us help you develop a plan to accomplish your goals.

 

Kimberly Grant
Realtor, Exit Leon Crawford Realty
Search Huntsville Homes for Sale

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