If you are a home buyer, it's very important to try to refrain from making major credit purchases before buying a home.

What many real estate buyers don't realize is that the monthly payments you are making for those credit obligations can dramatically decrease the size of loan you qualify for by a ratio of about 100:1. That's a large amount of home buying power you're giving up when you decide to make credit purchases before buying a home.

Let me give you an example. Suppose you take on a new car payment of $350/mo. The amount of money you are qualified to borrow from most lenders will be about $35,000 less (100 x $350) than what you might have been able to borrow without that car loan.

If you had been able to qualify for a $250,000 house before purchasing that car, now you can only qualify for a $215,000 house. This is a 14% reduction in home price for merely a $350/mo. credit obligation, so it's important to consider.

The same ratio is true for consumer credit such as personal loans, major credit cards, department store cards, etc.

It's usually best to pay cash for items you need in order to keep your monthly credit payments as low as possible. You'll qualify for a better loan for a better house, and be better off financially for it!

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