When making large purchases such as a vehicle or a house, many buyers start the process by going to a car dealer or meeting with a realtor. The only research that is completed is often with brief and shallowInternet searches;taking the time to gather essential information can lead to a smooth buying process and result in purchases that are easier to financially manage.
1) The first step with any major purchase is to check your credit. A free website like annualcreditreport.com is a great place to start. This is a government run website that allows you to obtain one free report from each of the three reporting agencies each year. Car dealers will only pull from one credit bureau but home mortgages will pull from all three. Other advertised credit report services may have a 30 day free trial, but will charge for services after the trial period ends. A free report without the score is all you need, and the credit score is only a few dollars.Not sure what the number on the page really means? The higher your number, the more positive your rating is; anything above 700 receives the best rates.Your credit is a primary indicator of the interest rate you will be charged as well as the cost of your insurance policy.Review the credit report for accuracy and address any errors before applying for the loan. If there are any recent late payments, consider delaying a major purchase, as adding further strain to your already thin finances could lead to a world of trouble.
2) Analyze your budget, and keep in mind thatthe cost of the car payment and insurance should be no more than 20% of your take home pay.On the other hand, you may be unable to obtain a mortgage if your debt exceeds 43% of your income. Such a figure should not only factor in the mortgage, but also the insurance payments, taxes, monthly bills, car payments, etc. Utilities, cell phone bills and other bills not found on the credit report are not included in this ratio. However, even though the bank doesn’t take other factors into consideration doesn’t mean you should follow suit. Other expenses like medical bills, health insurance premiums, routine costs of groceries, cost of gasoline . . . doing an accurate analysis of how you much spend on a regular basis will help you to determine what you can reasonably afford when purchasing property or an automobile. See places like Bankrate.com for home financing, and Autocreditexpress.com to learn more about credit and auto loans.
3) Having a clear idea of what you’re budget is, search online for cars or homes in your price range. The purpose of this is to establish realistic expectations that line your existing financial plan with what is available on the market. Do price comparisons on insurance and taxes to determine what your actual costs will be, and do not forget to include maintenance fees and repairs. Newer cars and homes will need less maintenance than older ones.
4) Separate financing from the purchase process. Visit a lender and obtain pre-approval for the purchase before you visit a car dealer or look for homes with a realtor, as this will make the buying process easier, smoother and faster. Have the lender verify the documents for income, tax returns or other needed paperwork to determine that you have all the acceptable paperwork to get the loan accepted. There are major disappointments when you fall in love with a home or car only to discover you cannot get the financing.
Rethinking the car and home buying process will allow better financial decisions to be made. Understanding the total cost of ownership can curb the desire to spend beyond what you can afford and help you enjoy apurchase that will not break the bank.