first time home buyers
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 a borrower’s monthly minimum obligations paid on debts. We take those minimum payments, including your proposed total mortgage payment (principal, interest, taxes, insurance, and private mortgage insurance). Then we 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 yesterday: “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 two-car family spending $750/month on car loans. This would reduce 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. Also, the short commute you so desperately want, it may no longer be in reach.
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 hefty 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 (a/k/a: 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 jumped to attention upon 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. Talk first before paying off any debt or restructuring those credit card balances. Next, work through your debt-to-income ratios with someone who does this every day. So, does leasing a car affect a buyer’s ability to buy a home? YES, it absolutely can.
— Dan Tharp
If you have loan questions or need to be pre-qualified please call our expert loan officer, Dan Tharp with Guild Mortgage. NMLS # 3274, Equal Housing Lender. He can be reached at 916-257-1470. Dan wrote this blog for us and he did a great job, thank you, Dan.
While few agents are in the business of talking people out of buying a house, some buyers are not ready to buy a house. Oh, a buyer might think she is ready but down deep she is not. For starters, if you do not have a preapproval letter, you might not be ready to buy a house. This is assuming, of course, you are obtaining financing and not paying cash. Or, perhaps your benefactor is buying the house on your behalf, in which case, no preapproval required.
Another way to tell that you are not ready to buy a house is if you find major flaws in every house you look at with your agent. Enough serious drawbacks to know that none of the houses you viewed for the past couple of weeks fit what you desire. In that event, you should reassess with your agent your priorities. Are you looking for a unicorn house? That could be a sign that you need to design and build your own house.
Few houses are perfect, except, of course, the home you build yourself. Most buyers make concessions because they know they will not find everything on their list. If you want to buy a house with a view, for example, you might need to give up another requirement to get that view. Or be willing to make upgrades to outfit the house the way you want it.
Some buyers cannot find anything to buy in their price range or they harbor unrealistic expectations about what they can get for their money. They might spot a short sale, for example, that is severely underpriced because the listing agent is an idiot. Then, they take that particular listing and fixate on it, hoping to find another priced the same way. Which they won’t because that listing is not a “real” listing.
Another way to know a buyer is not ready to buy a house is the cold feet syndrome. Especially after going into contract to buy a house. Some buyers develop cold feet within a few days. Other buyers can make it all the way to loan docs before they freak out. If you have misgivings or an inner voice pulling you in another direction, you might not be ready to buy a house.
Just last month I encountered an odd situation. I sold a bungalow near downtown Sacramento to four different sets of buyers. Each went into contract and each group canceled without provocation. That poor seller. I felt a lot of empathy for him. Because there was no explanation. Other than the fact we can’t pick our buyers, that’s the buyer’s agent’s job, and somehow every single one of those buyer’s agents also failed.
Most committed home buyers who are ready are very excited. They are jazzed and ready to go. It is not unusual to fall in love with house after house and have a hard time deciding between a handful of homes because they are all so gorgeous. So many of those homes fit the bill of wants and needs. There is anticipation that the next house will be “the one.” Buyers who are ready can’t stop talking about their purchase.
If you feel so-so about it and are not consumed by a passionate driving force to settle down in your own house, you might not be ready to buy a house. That’s OK, too. Your Realtor is your advocate.
When will mortgage interest rates go down, the caller asked yesterday. Sure, he’s just doing construction across the street or maybe he lives in the neighborhood. Not really a buyer, he says. After a much longer discussion, turns out the caller is actually a vet with a VA eligibility. What he really wanted to know was is it a good time to buy a home?
But like so many other first-time home buyers today, he asked the question of when will mortgage interest rates go down. As though that is some kind of secret measurement of the gateway to homeownership.
Never. That’s my answer. Our days of historically low interest rates, oh, please dear, God, let them be over. Interest rates have been superficially suppressed for almost 10 years and are not an indicator of a strong economy.
You live long enough, you see everything. Why, in 1995, I recall feeling almost giddy that I was able to score an interest rate of 8%. Also, when making the transition in the 1970s from escrow officer to real estate agent, I saw first-hand the days of 18% to 20% interest rates.
So when rates hover around 5% today, which gets buyers fretting and wondering: when will mortgage interest rates go down, part of me says they have no idea how good they have it. It also makes me want to ask: hey, have you looked at your VISA card statement lately? Making the minimum payment, are we? How much is that interest rate?
Quentin Fottrell, personal finance editor at MarketWatch, says making minimum payments on a credit card is insane. He offers the following: “A $2,000 credit balance with an 18% annual rate, with a minimum payment of 2% of the balance, or $10, whichever is greater, would take 370 months or just over 30 years to pay off.”
Yet, you don’t hear anybody complaining about that 18% credit card interest rate. Instead, they focus on a 5% mortgage interest rate and wonder when will mortgage interest rates go down.
Further, what do borrowers have to show for paying on that 18% credit card rate? Not a house, that much I can tell you. Generally, it’s impulse purchases or depreciating items. For some borrowers, all living expenses are financed, like gas and groceries.
However, facts are prices are soft on many homes as inventory rises, which makes it a great time to buy. Our Sacramento housing trends for September 2018 show double the number of homes for sale since January. Plenty of selections. Just lock in that interest rate. Because every one-half of a percent drops your purchasing power by about $25,000. That means if you had hoped to buy a $400,000 home, you can only afford $375,000.
This Rosemont home in Sacramento is much more than a heavenly vision in white. It is spotless. Truly. It was pretty much impossible to find a crack in the walls or a stain on the floor or even a fingerprint smudge in a doorway. When we say this is turnkey and ready to move into, we mean it. Absolutely no work is required, no cleaning service is needed. The paint on the walls is almost as pristine as the day it was painted, except for maybe a small nail hole here and there. If brilliant white is your favorite color, then you’re in a for a treat.
I’ve always admired those who could live with white furniture, for example. I find it so completely feminine and beautiful. I would love to own a white leather sofa. But then I remind myself that I have 3 filthy felines who utterly destroys every piece of furniture I have ever coveted, including our mango kitchen dining set. One needs to make excuses for pets and look at their destruction with a different mindset, such as, oh, look, how cute, Tessa the Ocicat bestowed upon us a piece of personal artwork by shredding the back of that bench. I shall her treasure her inspired etching.
If you should happen to own a pitbull pup, you might want to change out the carpeting in this Rosemont home in Sacramento, which is also a brilliant white. It’s luxurious. The walls and ceilings are also white. Not off-white, not taupe, but white. White works in this house, trust me. You will love it. Also, one of the nice features of this home is it was owned by the same family for 50 years. The father was a perfectionist and a putterer. He was always making sure the home was running like a well oiled machine. If anything malfunctioned, he fixed it right away.
This is the kind of guy who blows in insulation throughout the walls. He insulted the shed in the back yard. He insulated the garage door. His fence posts are steel, covered in wood. The roof has a lifetime warranty with cement tile and was recently replaced. The HVAC is newer, and is not on the roof like many other homes in Rosemont. The patio cover on the back deck is white aluminum with a foam interior to insulate against heat. There is a ceiling fan over the stamped concrete patio. Much of the cement work looks like bricks, and the walkway wraps around the house. This guy also built workbenches with compartments inside the drawers in the garage. There is a water softener in the garage. The exterior stucco is reflective as well.
This Rosemont home in Sacramento is north of Folsom and west of Watt. It is a 3 bedroom, two bath, with an updated kitchen. The kitchen features granite counters and the cabinets, although oak and not white, are as glossy as the day they were new. Although the microwave and gas cooktop are stainless steel, the built-in oven and refrigerator (which stays) is white. Off the kitchen is the formal dining and a fireplace. Come to our open house on Sunday, July 30th, from 2:00 to 4:00 PM. Check out the virtual tour here. 8604 Cliffwood Way, Sacramento, CA 95826 is offered exclusively by Elizabeth Weintraub at Lyon Real Estate at $325K. Call Elizabeth at 916.233.6759 for more information.
The seller of this Del Paso Manor home has lived there for 22 years. This is a 1950 Lusk home, and you can see the small detailing that builders no longer do. Things like an angled corner in the hallway to make it easier to navigate mattresses around the corner, and slightly angled walls near the entrances to the bedrooms.
There is great pride of ownership evident. This is not a flipper. When a person loves his Del Paso Manor home, it shows. Sellers like this tend to take impeccable care and stick to maintenance schedules like clockwork.
You’ll find hardwood floors in the living and dining room, all of the juke boxes, btw, have been removed. A beautiful mantle graces the fireplace. Note the original shelving near the pass-through to the kitchen, with built-in glass cabinets below.
The kitchen has been redone. New cabinets with brushed nickel hardware, gorgeous flooring, granite counters, tiled backsplash, pre-rinse faucet, even a dining bar, and all of the stainless appliances are new, never been used: dishwasher, microwave, gas range and refrigerator.
You’ll find 3 bedrooms, plus a family room featuring French doors that lead to the huge back yard. The bath has been updated with tile, a newer vanity, mirror, light fixtures and cabinet.
This Del Paso Manor home is situated on a large lot, almost .20 acres, completely fenced. In addition to the garage, there is a workshop / house with windows and a storage shed. The El Camino does not stay but the seller is interested in selling it.
Come to our open house on Sunday, May 21, from 2:00 to 4:00 PM. Or call Elizabeth Weintraub at 916.233.6759 for a private showing.