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Apr 17, 2023 Purchasing a vehicle can ruin homebuying plans

Gary Sandler

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Published 17 April 2023

Purchasing a home or a vehicle are both exciting propositions. So exciting, in fact, that during the process one’s thinking can sometimes be skewed to the point where an emotional decision is made that would not have otherwise been considered prudent. Buyers who find themselves in such a circumstance often suffer from a significant case of buyer’s remorse. That remorse often comes on the heels of a frightening realization that the decision was financially unwise.

As a Realtor, I’ve seen this phenomenon play out in real time. Take the case of the young newlyweds who had obtained good jobs and were excited about moving forward with their lives. Their first order of business was to buy a home. Thanks to their solid employment and history of paying their bills on time, they easily qualified to purchase a home in their desired price range. So, off they went in search of the place where they would soon start their family.

Since the couple was aware that it was a seller’s market, they immediately began sorting through the inventory of homes for sale. Unbeknownst to me, they were feeling overly frisky about the doors their newly established credit could open for them. It wasn’t until I met them a week-or-so later that I learned that two of those doors came in the form of a brand-new pickup truck.

Yes, the couple was so excited about moving forward with their life plans, they allowed their emotions to get the best of them while “just looking” at their local dealership. It took only 24 hours for them to realize that the amount of the truck payment increased their debt to the point where they no longer qualified for their mortgage. In the end, it took the couple more than two years to restructure their debt and once again qualify. Unfortunately, both home prices and interest rates increased over that 2-year period.

So, what sort of impact did our newlyweds’ truck purchase have on their ability to qualify for a mortgage? One method of calculating the answer is to determine how many thousands of dollars in mortgage value the truck payment represents. First, a few assumptions.

Let’s say our borrowers wanted to obtain a $200,000 mortgage. According to my trusty calculator, the monthly principal and interest payment on the 30-year version at 6.0 percent is $1,200.00. Expressing the payment in another way, the borrowers would pay $6.00 per month for each of the 200 individual thousands they intended to borrow ($6.00 x 200 = $1,200.00). Let’s also say the truck loan our lovebirds obtained was in the amount of $50,000 and carried a $827.46 monthly payment at 5.95 percent for 72 months.

To determine the mortgage value of the truck payment, one needs only to divide the $827.46 truck payment by $6.00 per-thousand mortgage payment. The result is that the monthly truck payment is equal to a mortgage payment on a $137,910 loan ($827.46 / $6.00 = $137,910).

So, there you have it. Our enthusiastic but unfortunate couple went from qualifying for a $200,000 mortgage to qualifying for a $62,090 home loan in the time it took to sign a piece of paper. You can imagine the shock the couple felt when they realized what they had done. I can. I was there.

The moral of the story is that borrowers should make sure they know what impact their monthly payments will have on their ability to qualify for a mortgage or vehicle loan (or for any other type of borrowing or extension of credit for that matter) before they sign on the dotted line.

See you at closing.

Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at 575-642-2292 or Gary@GarySandler.com.

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