home-buyerHey Cool Car Fans,

Many times people will decide that they want to purchase a home, but their debt to income ratio is too high.  They may have a great job and the income and they have even saved for a down payment, but their car payments are preventing them from being able to purchase a home.

There are some creative ways to lower a person’s car payments that can really help with their debt to income ratio and allow them to qualify for a home loan.  I have a good friend and client, who is a mortgage banker and he will routinely call me throughout the year and ask me to assist one of his clients to qualify for a mortgage by lowering their car payments.  There are a number of ways that we can do this to make it happen for people and allow them to take advantage of a home mortgage situation.

2012qx56The first thing that we can do is refinance the person’s current vehicle and lease it back to them that can sometimes really lower their payments.  I recently had a client who was able to lower their payment on a 2012 Infiniti QX56 from over $800 a month down to $422 a month by leasing the vehicle, instead of continuing with her current payment structure.  Being able to lower her payments really helped her with cash flow based on her financial situation.

Many people have lifestyle changes and they don’t look at this as an option.  For example, if a person can lease a vehicle and have a lower payment than they have money available for qualifying for a home or funding an investment grade cash value life insurance policy.  This can be a great strategy that will allow someone to put money away that they can use for other funding options.

lifeinsurancepolicyAs a licensed life insurance agent in the State of Colorado I can show people how to leverage the benefits of dividend paying whole life insurance from a mutual life insurance company.  One of the tremendous benefits of these products is that a person can invest in a policy, have a death benefit and build cash value to borrow against in the future for opportunities like financing their own vehicles without credit and at really low interest rates.  There are huge benefits to this strategy that I won’t go into detail here, but it’s an example of how if you can lower your car payments you can have other financial opportunities available to you.

I’ve had a number of people who have refinanced their vehicles by either financing or leasing them to lower their payments, but another option is to trade out of the current vehicle and into another vehicle.  This is another strategy that many people don’t think about and they miss out on a way better financial opportunity.

400For example, many people are told by the television and radio “financial gurus” never to lease a vehicle, but what if you have an opportunity to buy a home at a great price?  Let’s hypothetically say that you have a $600 a month car payment that is holding you back from qualifying for a home, but you only need $200 more a month in cash flow and you would qualify for the purchase.  What if you could get out of it, lease something similar in a different brand and have a $400 a month payment for three years with miles that would work for you?  That’s $2,400 a year, which over three years is $7,200 in savings.  This is money you can use for other opportunities or save for the future.

Let’s assume that you are $4,000 upside down though to get out of your $600 a month payment?  That is still $3,200 in savings over three years with much better cash flow, when you subtract the $4,000 from the $7,200.  This is what many people don’t think about.  What if you are able to purchase a home for $10,000 less because of the market in your particular area and you can now do that because of your improved cash flow?   Suddenly, that $4,000 in negative equity on the vehicle that you rolled into a lease makes perfect financial sense because you immediately saved $10,000 on the home purchase.  Over three years, the home you purchased is probably going to appreciate in value as well.

“Typically in the U.S., property prices rise 3.5 percent per year, Humphries says, and since about the middle of 2013, they’ve gone up 6 to 8 percent a year.” – Source: USNews.com

“The median home value in the United States is $189,400. United States home values have gone up 5.5% over the past year and Zillow predicts they will rise 2.9% within the next year.” – Source: Zillow.com

This is just one example of how it can make sense to lower your payments using a lease, trading out of a vehicle and purchasing or leasing a different vehicle or even doing a refinance for better cash flow.  As I mentioned already, I also show people how to use this type of a strategy to put the additional savings into an investment grade cash value life insurance product that also goes on the asset side of a balance sheet.  This can allow a person to put money away over three to five years and begin building a stronger financial foundation for themselves.

The bottom line is that sometimes it can make more sense to finance or lease a vehicle and lower payments depending on a person’s unique financial situation.  Everyone’s situation is different and people have life changes, including divorce, health concerns, retirement, credit challenges or opportunities that they want to take advantage of, so I have found that there is rarely a one-size fits all solution.

It’s honestly never a cut and dry statement such as “you should never lease a vehicle” or “you should never refinance a vehicle” or “you should never buy whole life insurance” like so many of the “financial gurus” like to claim.  Sometimes it makes perfect sense.  I’ve seen many people really improve their financial situation by restructuring their automobiles and the way that they go about financing or leasing them.

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John Boyd

Auto Consultant – John Boyd: The Cool Car Guy

John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! jboyd@coolcarguy.com or Twitter @coolcarguy