Find yourself whiling away the hours on real estate apps? Daydreaming about a new car while you wait for your trusty clunker to heat up in the winter? Owning a home or buying a new (or used!) car is not out of reach. There are a lot of options available to people looking to become homeowners, as well as for those who want to upgrade their vehicle. We've outlined six questions to ask as you begin your journey to a new home or car.
The very first thing you should do is ask yourself if you’ve got the money to buy a home or car. Consider your current monthly housing and car payments and use an online calculator to estimate what a mortgage might look like or what your new car payment might be.
Secondly, determine a budget for yourself. Using the information you gathered in the step above, write out a few different budget scenarios to determine what your capacity is for affording a mortgage or car payment. Be realistic about what you can manage in relation to your monthly income.
If you’re in the planning phases for a big purchase like a home or vehicle, it’s a good idea to obtain a copy of your credit report. Everyone is entitled to one free copy of their credit report every 12 months from each of the three major credit reporting companies – Experian, Equifax, and TransUnion. www.AnnualCreditReport.com is the only authorized website for free credit reports.
Once you have a copy of your credit report, take a close look at it. If you notice any errors, report them immediately to that credit bureau through their dispute process. Correcting errors is important because your credit report will be pulled and considered closely when applying for a loan and will help the lender determine your creditworthiness.
Your credit score will help give a lender a snapshot of your credit history so they can determine your creditworthiness and your interest rate. Just like confirming your credit report is accurate, knowing your credit score can help you know what to expect when applying for a loan to purchase a vehicle or home.
Your credit score is a three-digit number calculated from many different pieces of credit data. The five categories of data are: payment history (35% of the score), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%). Your credit score is determined using data from your credit report which is why it’s so important to ensure all the information on your report is accurate.
If you’re a PSECU member 18 years of age or older, you can enroll in our free credit score service.
For homebuying, you will be expected to make a down payment. Minimum down payment amounts vary by loan type and lender. It’s likely you’ll have to put money down to purchase your home. In a survey from 2021, the National Association of Realtors found the average down payment on a home was 12%. For those aged 30 and under, that number drops to 6%. Down payments under 20% typically require you to purchase PMI (private mortgage insurance), which can raise the cost of your monthly housing expenses.
When buying a car, there’s no standard for a down payment amount. However much you can afford to put down toward your car’s purchase price, the less you will owe on the loan. If you are trading in a car, you could use that as your down payment or put even more down on top of what you are offered for the trade in.
Interest rates are essentially the cost of borrowing money. They are always changing, and a specific loan’s interest rate will be determined by the lender and your creditworthiness. When interest rates are high, you will end up paying more for your loan than when interest rates are low. Even small percentages can amount to significant differences in the total cost of a loan, particularly with higher loan amounts, like when purchasing a house.
It’s smart to find a lender who can offer you the lowest interest rate possible, regardless of the loan amount or interest rate environment.
If you’re in the market for a new ride, or you’re looking to purchase your home sweet home, PSECU is here to be your trusted financial partner. With competitive auto loan and mortgage rates, we offer personal service and peace of mind, all to help our members achieve more.