Many buyers don't realize how important it is not to make major credit purchases immediately before buying their first home (or any home for that matter). What they don't realize is taht any monthly payments they are making for those credit obligations will decrease the size of the loan they can qualify for by a ratio of a whopping 100:1! That's a big chunk of buying power that is being discarded thoughtlessly.
Let's go over how this works. You just bought a car that costs $350/mo. Using the 100:1 ration to determine how this purchase affects your buying power, the amount of money you are now qualified to borrow will go down by about $35,000 (100 x $350) than what you would have been able to borrow before purchasing that new car. The same goes for consumer spending like credit cards, department store cards, etc. Every $100 in monthly payments takes $10,000 off of the price of the home you can afford.
In general, it's best to pay cash for items you need and keep your monthly credit payments low. This is just good advice whether you're buying a home or not!
