Cash for Clunkers
$4500 dollars in free money to anyone who will trade in a perfectly good car that gets less than 18 miles per gallon. Most of these new car buyers will borrow most of the additional money needed to purchase one of these new more efficient cars. So far so good, more efficient cleaner cars on the road, more auto sales have to be good for the car makers and therefore jobs and the banks get to make more loans.
Of course the $4500 isn’t exactly free, at least not to all of us as a collective group; we are the ones giving it away through our government.
Since when do I care about cars or government giveaways? I write about real estate.
New car loans will reduce the number of people we can sell homes to over the next few years. More consumer debt is and has been the problem.
Under the newer existing and newer yet to be completed financial consumer protection rules, underwriting standards for home mortgages are getting tighter.
Consumer debt to income ratios affect their ability to take out a new mortgage. Mortgage lenders will count the new car payment loan against the borrower. For some of the cash for clunkers buyers that will be taking on a new car payment, that additional debt will push their debt to income ratio too high to qualify for a new mortgage.
In order for the housing market to really open up, consumers must reduce debt, not increase it.
The $8,000 first time homebuyer’s tax credit and the cash for clunkers are two of the most direct to the consumer stimulus funding programs. Both will help get money moving again.
If you plan to use both programs, buy the house first. Let me repeat that, buy the house first. The auto lender will in general view home ownership as a positive thing. While the mortgage lender may use the new car loan as a reason to deny you a new mortgage.
Whether you qualify for the $8,000 first time home buyers credit or not, if you think you may want to jump into homeownership in the next couple of years. Take the time to talk to a mortgage lender about your debt to income ratio and what a new car payment will do to your ability to get a mortgage. Please do this before you run out and test drive that new car.
Chris W. Miller
ERA Brokers Consolidated
Mesquite NV 89027
Tags: mesquite nv real estate