Will buying a car mess up my chances of buying a house?

Article by Cripps Realty

Buying a car can indeed affect your ability to purchase a house, although it depends on various factors such as your financial situation, credit score, and debt-to-income ratio.

When you apply for a mortgage to buy a house, lenders evaluate your financial stability and your ability to make monthly mortgage payments. They consider your income, existing debts, credit history, and other financial obligations.

“If it is 24%, meaning you spend $24 for every $100 you earn, then you might still make auto payments there. However, if you’re on the verge of paying more than what lenders would consider acceptable in their ratios — 39, 40, or higher — an additional payment will regrettably push you over that threshold. Your mortgage broker will provide you all the information you require and determine whether you can afford to acquire both.”

Here’s how buying a car might impact your chances of buying a house:

1. Impact on Credit Score: Your credit score may drop momentarily if you take out an auto loan because it will cause a hard inquiry on your record. Furthermore, financing the car with an auto loan would raise your total debt burden, which could have an impact on your debt-to-income ratio.
2. Monthly Payment Obligations: A car loan adds to your monthly financial obligations. Lenders will assess your debt-to-income ratio, which is the percentage of your monthly income that goes toward debt payments. If your car payment pushes your debt-to-income ratio too high, it might affect your ability to qualify for a mortgage or the amount you can borrow.
3. Down Payment and Reserves: Your savings that could be utilized for a down payment on a home could be completely spent on a car purchase. Borrowers with a sizable down payment and enough cash on hand to meet unforeseen costs after purchasing a home are usually preferred by lenders.
4. Delayed Mortgage Approval: If you’ve recently taken out an auto loan, lenders might prefer to see a few months of consistent payments before approving you for a mortgage. This is to ensure that you can manage both your car loan and potential mortgage payments responsibly.
5. Overall Financial Picture: Lenders take into account your general financial responsibility and stability. Purchasing a car may not significantly affect your ability to purchase a home if you have a track record of responsible credit and debt management. However, adding a car loan to your debt responsibilities could swing the odds against you if you’re already on the verge of qualifying for a mortgage.

It’s essential to consider how a car purchase fits into your overall financial goals and to consult with a financial advisor or mortgage lender to understand the specific impact on your situation.