Unsure whether you should buy a new or nearly new car before purchasing your first property? For many young people, it’s often a battle. The peer pressure of driving a nice vehicle to and from work or continuing to repair their existing car for a few more miles and for some it’s already too late. They’ve gone and bought a new car without thinking how it can keep them from qualifying for a mortgage maybe one or two years into their car payment. In this article, we will demonstrate how your car can keep you from qualifying for a mortgage.

Let’s take Johnny for example. Johnny is a First-Time Home Buyer who makes a great salary of $50,000 annually without any debt and is looking to purchase his very first condo with 5% down payment saved. He is also interested in upgrading his old car into a newer model; however, he will have monthly payments of $500 per month on an auto loan. If he continues to drive his old car that does not have any payments owing on it, he will be qualified for a maximum mortgage amount of $268,000. If however, he decides to purchase his new car before purchasing his condo, his maximum mortgage amount that he will qualify for will be greatly reduced to $202,000 (both these numbers are approximate).

Our advice would be if you or anyone you know is looking to purchase a home but is also considering a new car, wait until the completion of your home purchase is done before purchasing the car (if you are financing or leasing). The monthly car obligation will greatly reduce how much you will qualify for; it is 100% worth the wait.

It’s enjoyable (and tempting) to own a new car, but when you consider the trade-offs between an old-ish car a new car and the impact it has on your ability to buy a home or meet other financial goals, is it really worth it?

Once you have your mortgage under your belt and are comfortable with your mortgage payments, you may be able to afford that new car you were tempted to buy before you were a homeowner.