2. Big Ticket Purchases: Do You Meet the Qualifications?

Hello, and welcome to this module, Big Ticket Purchases, Meeting Qualifications. So this is going to be a really important module. As you get ready to decide what big ticket purchase you’re going to qualify for, or at least try to position yourself to qualify for. So at this point, we’ve already done the cleaning the glass. We’ve put the water in the glass we have, or we’ve put cleaning glass with the ice and glass. And now we’re just getting that place to where we want to obtain the water. So I want to go over some housekeeping things, so that way, you know exactly how you can get qualified. So here’s what we’re going to cover. So the first thing I’m gonna get into is your credit file qualifications. And if you don’t have these qualifications, then you don’t want to be moving forward with the steps in this particular week.

The next thing I’m going to break down is DTI. I’ve covered this before, but I want to reiterate the importance of DTI and how it was going to come into play with getting approved for big ticket purchases. Then I’m going to help you decide, do you want to do a new car, a new home first, which you know, which one do you do and why then I’m going to get into the tools and the resources that you have available just as a recap. So you can know exactly how to leverage this information moving forward. Okay. So right out the gate, let’s go and talk about the credit file qualifications. So again, this module isn’t going to be too deep. It’s going to be too long. It’s more so just setting the stage for the other things that we have resources. However, the first thing we want to make sure we have is the holy grail of credit mix.

And as I already communicated to you, that’s, uh, at least having five revolving account in three installment accounts. And with those accounts, we want to make sure we have established good history and we’ve paid our bills on time. The other thing we want to do is if we have not already established some tier three credit card, and as I said prior to in week 8, and also really this was in week, yeah, week 8 and week 6, you established in week 6, the 20K blueprint. And then in week 8, when you got to week 8, as soon as all the negatives were removed from your credit report are broke down exactly how to go out and get some tier three cars. Is it absolutely needed? No, but this is going to help you with your file. So that way you can have your realization where it needs to be.

And now you have some additional credibility. The other thing is you want to make sure your reporting credit utilization is between 1 to 7% before you even try to attempt to go get approved for big ticket purchase. And that’s also known, and this is going to be the first time I bring this up. That’s also knowing your credit to debt ratio. So that’s how the banks are going to look at you. i.e. your credit utilization. So it needs to be one to 7% reporting. Now there’s a difference difference between your payment due date and your reporting date, your reporting statement, date, what do you want to make sure that the balance on your credit cards are reporting no more than 7%? So you can maximize all the points available to you in that category. Then we want to have little to no miss payments at all.

So, I mean, if you have a few missed payments and that’s fine, but if you can not have any missed payments or work on getting the established payment history for three, four, five, six months, that’s going to help you. And it may have been bumped you into a different tier of, of credit. And I’ll get into the tiers of credit and the respect of resources on this, on this, in this week, so to speak, but you want, you don’t want to have any missed payments. And if you do, you want to overcome those missed payments with on-time payments. The other thing, and this goes without saying, but I want to reiterate this. You want to have a cash flow control system in place, not thinking about it, not all may let me test that out. No, we’re already, at this point, we’re in week 10, we have done everything to ensure that we have not only our credit, right, but we have a strong cash flow system so that we can maintain making our bills on time, manage our revolving credit, and then being, being responsible with the big ticket purchase that I’m positioning myself to get.

That leads me right into this, which is saving at least 5 to 10% of your net take home, pay in your future bucket. So one of the things that I cover in the cashflow control system is making sure you take care of the past, the present and the future. I either future means we’re ducking money away, at least minimum 5 to 10% of your net take home pay should be going away. And that that amount should not change. When you go to buy a big ticket purchase, you’re not going to sacrifice your 5 or 10% of your savings and or investing for a big ticket purchase, right? So if you remember, I covered the difference between assets and liabilities. And this is putting yourself in position to where you can be obtaining an asset and you are literally putting cash away or an, or investing or doing something to ensure that you have that money going away.

And that’s really, really important because you want to think about what I mean, I’m going to cover this called the opportunity cost. You want to think about the life opportunity costs and your future self opportunity costs. So I know this has everything to do with your credit file, but it has everything to do with your overall financial situation and being financially stable. So if, and when life chooses to happen, it won’t throw off your credit or your finances because you’ve already done the due diligence from a savings perspective. So that’s really, really important. So let’s go and get into debt to income ratio. This is extremely important as well as you get into wanting to get big ticket purchases, because this is going to be the biggest factor that they take into account. So I’ve covered this before, but I’m going to recover it again.

And I probably will cover it in the other resources as well, but I just want to drive this home. So your debt to income ratio was known by is, is all of your monthly debt divided by your gross monthly income? So this is the number that the lenders are going to use. And if you remember, I covered the four C’s and I’m going to cover it again, but this is what the lenders users are determined. Um, your ability to essentially pay them back with the money that you’ve already borrowed. So they’ll want to know this, and this is, this is not going to include access to unused revolving credit. It’s not going to impact your DTI. So for instance, let’s say I have $100,000 in available credit cards, available, availability to use. However, I’m only using, you know, 5,000 of it in this scenario, I’m only using 5% of my available credit.

So only the 5% monthly payment. Let’s just say that monthly payments 150 bucks a month. If I don’t pay it off in full, which we all know that we always pay our balance off, balances off before the due date. But let’s just say, that’s what it is that would be included in my DTI. So, but the, the available credit itself does not affect my DTI ratio. Again, only the amount that I have as balances. So let’s just say in that same scenario, I have a hundred thousand dollars in available credit, and I’m using 85,000. Then that would significantly impact my DTI ratio because the monthly payment associated with that is going to be larger because I have to pay them on a monthly basis, not dimension, I’ll be losing almost 85% of the points available to me in that category, right? So the way we calculate our DTI is really simple.

So step one, we want to add up all of our monthly debts, rent, and or mortgage. And that’s also going to include your auto insurance, student loan, personal credit card payments. Like I was just saying, child support, how many, then you’re going to divide that number by your gross monthly income or your GMI. So, for example, let’s just say your total debt equals $2,500 per month, including the first two above. And your gross monthly income is 7,500. That means in step three, we would just divide 2,500 by 7,500. That means that we currently have a 33% DTI ratio. Okay. Now typically, and I’ll get into this and the resources, but typically anything over like 30, 36%, 37% is a high DTI ratio. Considering that the majority, almost four out of every $10 is going to pay off debt. And that’s a, that’s a huge thing.

So we don’t want it to be, you know, too high. So that 30 to 33% is, is a, is a good way. And this helps you calculate your DTI. Okay? Now this leads you right into this point, which is, should I do a new car or a new home? And I wanted to do this after I re explained DTI ratio to kind of get you thinking about this process. So if you’re not yet at a place where you’re saying, Hey, look, I want to buy my dream home. I do want to get started in real estate, but I want to do it more so from an investing perspective, but I just want to live my life and continue to rent until I’m ready to find that dream home, then that’s fine. But if you’re watching this and you know, you want to purchase a home first, let me just explain this, following your understanding of DTI and credit utilization.

So, so DTI utilization will be important with this decision. So obviously we want our DTI to be as low as possible. So if we do a new car first, this means we are going to by definition, have an increase DTI because our monthly auto vehicle payment will be included as a monthly payment. That goes towards my DTI ratio, which means I’m potentially going to lower my home buying power by definition, because I’m saying, Hey, look, I want to get this nice $75,000 car, right? And that monthly payment may be 1200 bucks a month, right. Which is ridiculous when you stop and you think about it. So that’s definitely going to significantly impact that the amount of home I can qualify for. Right? So again, remember not to mention a car is a liability because a car does not produce any income. Um, or if we do the new home first, technically, you know, we’re going to have increased home buying power because we’re not going to be having additional monthly car payment on top of any other car payments I would have.

So this is going to give me the ability to maximize all of the available dollars based off my income. So I can get as much home as possible based off my DTI. The other thing is is that if I replaced a rent payment with a mortgage, then I could potentially have the same or lower DTI. Now here’s what I mean by this. Let’s just say you’re currently spending $1,800 per month in rent. And you go to the DTI calculator ratio. You identify that, Hey, look, my, my fixed expenses are $2,700 per month. I bring home $8,000 per month or $7,500 per month. And I get a mortgage for $1,400 per month. Well, technically I just kind of lowered my DTI because now I’m actually paying less for my mortgage than I was paying for my rent, or I just get a mortgage for $1800.

And that’s going to get me XYZ amount of home based off where I live in the United States and my DTI is going to be the same, right? So the decision here between new car versus new home, if you’re at a place where you really want to purchase real estate, i.e. home, um, then I would suggest you do it with you would do that first, as opposed to getting a car. Now, even though technically like I explain assets versus liability and asset is something that produces cash or cash flow, and a liability is something that produces expenses for you. Technically a home is not an asset because it’s not producing income. However, it is an asset in terms of assets minus liabilities, or the amount that you owe as opposed to the amount it’s worth gives you equity. So that starts to build up equity in it.

And if you’re purchasing this property and you’re saying, Hey, look, I want to go out and buy this rental, I want to buy this property and turn into a rental property and I want to cash flow it. Then I’m going to create an asset, the moral of the story here that I’m trying to help you understand between a new car and a new home is the home has the ability to be an asset because it can produce cashflow. Now, I don’t want to flip the script here, but technically, if, if you can create your home or your new car to create cashflow over and above your monthly expense, then it can be viewed as an asset. However, generally speaking, if we’re trying to make a decision between new home, a new car, go with the new home first, unless you have already identified that you’re not looking to get a new home and you just want to maximize your, your, um, your credit and you want to go out and buy, buy liabilities and cars.

Now, one thing you could do since I’m on this about cars, is if you choose to do this, you need to know you’re increasing your DTI. And if you can take those cars and put them on a website, like let’s just say Toro, and you can rip them out and you make more from renting. Yeah. The car, then your car payment. Then technically you create, you turn in that you turn a liability into an asset because an asset produces cashflow. Okay. But again, that’s the, that’s the explanation between new car versus new home. It’s all about DTI and what you’re looking to do now. What are some of the tools and resources that we have? Well, the next one right below this video is going to be the auto financing system. So this is going to show you step-by-step the most effective way to go about buying and financing a new or gently used car.

So that’s the first thing. So if you’re looking to buy a car, I’m going to show you step by step, how to go about doing it. To ensure you get the best price possible. Then we have the home buying blueprint. So this is a, a, a, a resource that you can go through to prep yourself for the home buying process, especially if you’re a first time home buyer. So this is just kind of like some high level things that explains the whole mortgage process, real estate process from A to Z. So that is right below this particular video as well. So when we tend, what I decided to do was because there was so much content and so many different steps between auto and home. I wanted just to create those as if they were their own week when it’s its own module. Okay. The next thing is a DTI calculator.

So you weren’t taking advantage of that, just so you can know, although, you know, you can, you can use what I just explained to calculate it, but there is a DTI calculator right below this video, then you want to go back to your SMART goals worksheet. Okay. So this is something that was really important to you. So you want to take that and use it as a resource. And I put SMART goals worksheet, but I meant the smart goals worksheet. So let me see if I can get that “R” in there, just so we have, so I can be great and you can be great as well. Then we go SMART. Here we go. Everybody’s nice and good. All right. So that is a, that is a resource that we want to go back and reference. Then we have our defining our credit why worksheets.

So we want to go back to those worksheets because when we started out with this process, we wrote down goals that we wanted to accomplish. Let’s go back to those and make sure we’re still on track for those things. Then we have our credit reports folder. That’s what we’ve been keeping all of our documentation. We want to continue to use that as we be approved and we get approved for things and make sure we’re managing our cashflow and our finances effectively. And then again, last, but certainly not least. Most importantly, we have our cash flow control system in place. That’s going to help us maintain all of this and keep the glue, keep, keep this glued together, so to speak, right? So we will never, ever not, use a cash flow control system. Okay. So I am excited for you. I will see you in the next step. This concludes this module and let’s take action. You want to decide if you want to buy a home or a car, and once you make that decision, go to that respective module and go through the steps and take action.