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Chris Salese

Before I get started, I want to be clear. The intent behind this column headline isn’t to discourage you from making a new vehicle purchase this summer nor to suggest that you procrastinate on signing an incredible deal on a lease agreement either.

Instead, it might end up being the opposite as you read on.

Whichever road this travels, the objective of today’s column is to simply remind you to pump the brakes when it comes to auto financing and your home loan.

According to a recent report on auto loans from credit reporting agency Experian, “car and truck buyers are loading up with debt, the average new-vehicle loan hit a record high of $31,455 in the first quarter of this year, up $921 over the same period of 2017.”

After I read this, it got me thinking about why it’s incredibly important to remember to carefully manage your vehicle financing if you are looking to buy or refinance a home.

While I’m sure a basic search on Google regarding current auto loan statistics will yield plenty of results, let’s use this report from Experian as an example.

When the size of your auto loan increases, typically the monthly payment for that debt will go higher as well.

In addition, if the federal government continues to raise short-term interest rates, then your auto loan payments could go even higher.

However, there are several common ways to help minimize the impact of your vehicle expense on your wallet, such as extending the term of your financial commitment, putting more money down or buying a less- expensive vehicle.

Although in the same Experian report, it sounds like used vehicle loan sizes are now at record high levels too.

Lastly, you may find that auto leasing is a more favorable approach than purchasing one, yet leasing can come with its own pitfalls.

Therefore, regardless of which direction you go, here are a few things to consider.

Some home loan lenders will not count an installment debt, normally a vehicle debt, against you if you have 10 payments or less on it.

This means you might be able to exclude this from your home loan qualifications if you have sufficient assets to pay off the debt.

If not, then some lenders may allow you to pay down installment debt if you aren’t within 90 days of the credit report, the account is closed and proof is provided.

But if you end up with a lease, then likely that lease payment will be considered in your recurring monthly debt obligations no matter how many number of months remain on the lease term.

Even if you own alternate forms of transportation that are debt-free, your lender can make a discretionary decision to say that at the expiration of your lease it could lead to a new lease, the buyout of the current one, the purchase of a new vehicle or an open liability due to excessive mileage or damage to the vehicle upon lease termination.

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Chris Salese can be reached at chris@delsurmortgage.com or 707-363-4439. He is a licensed California mortgage lender (LO NMLS #254469 — CA-DBO #254469 Corp NMLS #1169 Equal Housing Lender.

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