It’s raining everyday in Vancouver it’s getting depressing. Canucks just got mathematically eliminated from the playoff with like 10 games to go. We are trapped inside so we might as well write another blog. This time let’s switch it up and continue to talk about preparing yourself for applying for a mortgage BEFORE you engage any mortgage brokers or lenders.
If you have not done so, please ensure you read my previous blog about how important it is to know/check/review your credit situation BEFORE applying for a mortgage or even getting a pre approval. Here is the link:
A lot of you will say I pay all my credit cards and loans on time, I have no collections item, I know my credit score is almost perfect, what do I have to worry about why applying for mortgage?
Usually if we know you are a prudent individual, we won’t even bother asking you pay your loans on time etc because we know you already do.
The one thing we will ask you though is are you carrying a car loan or lease? As we notice car leasing or financing is getting ever popular. We hear people say “yo I want always drive new car man, switch it up every 3-4 years yo, it will start to break down after 3-4 years and that will cause you money, car depreciates why you want to own them outright, once you drive out the lot you immediately lose 15% dude”
We typically get a surprised/wired look at us when we ask this question. Sometimes they will replied “yes, but I make payments on time, and the car loan amount is so small (relative to mortgage amount), they were offering 0% over X year, killer deal man, free money, only idiots will not take it, and it’ll get fully paid off in the next year or two, can’t lose, so why do you even ask?”
First of all, this is a misconception as a car dealer will not offer you 0% (= free loan) with no catch, but maybe that’s another blog for another day if there’s interest for this topic.
We try to avoid number crunching as much as possible because quite likely you are either reading this super tired in the morning on way to work and want to go straight to bed, or lying in bed at 2am so tired but doesn’t want to sleep. So we give 3 snap shots that explains everything:
To make our point relevant, we just went car internet shopping like a typical shopper would, we picked this popular SUV (I crossed out the model icon & number to remain anonymous) because they are doing a special offer 1.9% lease up to 4 years!
Below is a snap short of the lease payment amount for a 39 month lease at $997/month only.
Now this is where things get interesting real fast. Now check out this online mortgage payment calculators (again we crossed out the Bank’s name to remain neutral). We used typical current rate at 2.59%, 30 years amort, we plugged in a random mortgage amount of $250,000. Guessed what the monthly payment is for this $250,000 mortgage?
It is $997. hm…. seen this figured somewhere recently? Yes, this is exactly the same as the car lease payment above.
Conclusion: Because of this car lease payment of about $1,000 per month, the maximum mortgage eligible for this individual will be $250,000 less than whatever would have qualify based on his/her income level, whatever that is.
So if you would get qualified for a $300,000 mortgage amount before, once lender see this $1,000 lease pymt on your credit report, regardless if you pay on time, before due date, pre bulk pymt, have overall max credit score at 800, you will now only qualified for a $50,000 mortgage ($300k minus $250k).
So if this is your currently situation, assume you have $25,000 downpay, now you limited yourself to properties under $75,000.
But fear not, as I always say there will be something that fits your anyone’s budget, even in hot market like Greater Vancouver, even in center of Richmond!!!! “HURRY, THIS WON’T LAST” they say.
At the current market, Colin’s and Angel’s general rule of thumb is every $400 per month of car payment will decrease your mortgage eligible amount by $100,000.
That’s all folks. If you have any questions on real estates or mortgages, feel free to contract us via email, facebook, snail mail, flying pigeon, whatever works for you.
Disclaimer: This blog is for educational purpose only. We are not responsible for any monetary or non monetary loss as a result of, but not limit to, any errors or omissions on this blog. This is our personal opinions only. And we have no relationship with the listing agent/posting in the last photo.