Don’t Put the Car Before the House

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The next time you’re in the market for a car, nowhere will you ever see a disclosure or a word of caution from the salesman about how financing that car could hurt your future chances for buying a house.

Unfortunately, auto loans will affect your ability to purchase a house no matter how big or small the loan is. Lenders account for all liability payments the same. It’s not what you owe, but what you pay that counts.

So you could have a car loan for $30,000 and your balance has no bearing on your ability to close on a house; rather, it’s the payment associated with that balance that changes the game. This is key, especially if you proactively prepay your auto loan in an effort to pay off the debt faster. If you choose to pay more, that’s your prerogative, but for the purposes of qualifying for a mortgage, the minimum payments are king.

As for whether you lease or finance the car, it’s all the same. Let’s say you have a car payment for $500 per month and you have two more years left on your lease. That would be the same as if you had a personal car loan for $500 per month with a longer-term obligation. The same reasoning applies to both: The minimum payment is what lenders will use to calculate how the liability will affect your ability to purchase a home.

How Auto Loans Affect Your Credit Score

Having a clean auto loan payment history will do wonders for your credit score, and a favorable credit rating will actually help you qualify for a mortgage. Conversely, late auto loan payments can destroy a credit score, which can kill your chances of getting a mortgage.

Your credit score should be a minimum of 620 to qualify for a mortgage these days. Understand if your credit scores land in the 620 range, the lender is going to pay very close attention to your credit history as well as your capacity to handle a mortgage payment. They’re going to keep a particularly close eye on any pattern of payments related to any car loan you presently have or have had in the past, moreover what those patterns reveal about whether you tend to pay on time, as agreed.

Your payment history is the most important component of your credit score – so late payments can cause your scores to drop in a big way. Most people check their credit scores before they buy a home, and then find out too late that they have not-so-great credit, leaving themselves little time to improve it. It’s a good idea to make monitoring your credit scores a part of your financial routine so that when you are ready to buy a house, you’ll be better prepared to work within your credit standing. You can monitor your credit scores for free on, where you can get two credit scores, updated every month, with a plan to help you meet your credit goals.

How Your Buying Power Is Affected

Your buying power is measured as the spread (difference) between income and liability payments. The bigger this gap is, the more room you have to accommodate a mortgage payment.

So if you have payment obligations and your income is four times the amount of the minimum monthly payments, that’s a healthy financial position to be in.

Here’s how it works: For a typical ratio of 2:1, it’s every two dollars of income to offset one dollar of debt. For example if you have car loan payment at $400 per month, in order for that payment to not hurt your ability to buy a house, you need $800 in income to offset that debt.

In practicality, the next time you’re at the car dealership and you’re taking on a $400 per month car payment, and you know buying house is in your future, talk to your employer about that $9,600/year raise or promotion you are eligible for. (With a $400/month car payment, that’s means you’ll need $800/month to cover the liability and meet the ratio.)

Quick mathematical takeaways for what lenders look for regarding expenses-to-income:

  • Each $100,000 financed is equivalent to $725 per month of a mortgage payment
  • Every .125 in rate on every $100,000 financed adds $7.25 to the monthly payment
  • Each $500 of a mortgage payment translates to upwards of $65,000 in home price

Buy House or Buy a Car First?

In short, whether or not you buy a car first depends on how far away you are from closing escrow on a house. If it’s a longer-term projection for getting your keys, and your income is poised to rise, it may make sense to wait and purchase a house later on when your financial situation is more grounded. On the other hand, if you know you need to buy a car and buying a house could happen in the very near future, buy the house first when your liabilities are lower. Because qualifying for a car loan does not require the extent of credit analysis a home purchase does, it makes more sense to close on the house first before you buy the car.

If the car purchase can’t wait and a home purchase is in the near future, first see how you qualify with a lender to determine if you can qualify for the desired purchase price amount given your credit score, down payment capability, assets and debt ratio (amount of current debt + proposed mortgage payment ÷ monthly income). If you have trouble qualifying for your desired purchase amount, you’ll need to pay down your debt in an effort to qualify – if that’s an option for you.

Paying Off Debt Pitfalls

Would-be buyers take heed…

Not all lenders allow you to pay off debt to qualify for a home loan. Some lenders might require you to pay off debt to qualify and subsequently close the account. Others simply won’t allow it, wherein you would have to pay off the liability first in full and then have the lender pull a new credit report for you. Doing this may not necessarily adversely affect your credit score, so long as you’re not applying for different types of credit around the same time you’re applying for a home loan.

Lastly, if your pre-tax income is eroded by consumer debt like auto loans, credit cards or personal loans, a lender may ask for you to make a bigger down payment, pay off the debt entirely, increase your income or obtain a co-signer.

More on Mortgages and Homebuying:

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  • juan

    I purchased my house on 10-1-2013. I just refinanced at a lower rate this month3-10-2015. so that’s out of the way. Now I am interested in financing an auto. Is it a good idea to do so or should I wait?

    • Credit Experts

      A credit inquiry for purposes of extending a loan causes a small, temporary drop in your credit score and also typically can result in a change in your amount of debt (as when you take on a new mortgage). In your case, though, if your credit score is well within the good/excellent range (here’s how to get a free credit score, you could go ahead and finance a car. Do be careful to guard against too many inquiries from that process, though. See: An Auto Loan Inquiry Dropped My Credit Score 80 Points

  • Gerri Detweiler

    I see no reason why not.

  • ScottSheldonLoans


  • Daniel

    Hello I havea quick question, I’m currently renting an apartment at $525 per month and I havealways paid on time and I’m wanting to buy a house on May 2016, when my leaseexpires. I currently have a credit score of 610. I have been working in my job
    for about 2 years now with about $21,000 yearly. Back in 2013 I was approved for $100,000 but they denied me due to lack of credit history. I currently need a car but I don’t know if getting a loan of $7000 or getting a small loan of maybe $3000. My question is, would getting a car loan increase or decrease of
    me being approve on a house? I want to buy a car so that I could bring up my credit score I just don’t know at what money range. I know that the less debt
    you are the more chances of you getting approved. So I don’t know if I should get a car for cheap to pay the car in fewer months or to go with a more expensive car and keep paying for more months. Thank You

    • ScottSheldonLoans

      It will be a double-edged sword.On one side of the coin, it almost certainly will increase your credit score, on the downside, it will be a liability that will count against your qualifying ratios when trying to qualify for the maximum purchase price. I would recommend seeing what you qualify for now with the liabilities as low as possible, and if that purchase amount is something you can work with, hold off on the car until after the fact.

  • Mgz

    Quick question – have a car lease expiring in October 2015 and intend to buy the car at lease end (might end up with a slightly lower monthly payment if I opt for 60 months financing). In the market for a home in the high 200’s/low 300’s (5% down conventional financing) and may not be able to get into one before the lease expires. Debt-to-income is currently around 25-30%, FICO 850. Will buying the car greatly affect my ability to get approved for mortgage if a great house shows up in December/January? Or would I need to wait longer?

    • ScottSheldonLoans

      This depends on how much more the car payment will be in the future to what the lease payment is now. This 30% DTI is based on the current lease. The new DTI in relationship to your house price and future car (finance payment) will determine your new DTI. If keep this new DTI at 45% or under coupled with your other debts, you should be ok. The biggest question we don’t know is what the new car payment specifically would be. This is a variable, as is, the home price and interest rates, all of which affect your deb to income ratio.

      • Mgz

        Thank you for the reply. Monthly payment on the car lease currently is in the low 300’s — if I went with a 60-month purchase loan, it may actually be under 300/mo.

        • ScottSheldonLoans

          A good rule of thumb for this would be to keep it as absolutely low as possible, close on the house and then take a monthly allotment and prepay the car loan.

          • mgz

            Appreciate the response but I am more likely to be buying the car before getting into a house. The initial question was around whether or not that will greatly affect my ability to get a loan for the house 2-4 months after buying the car.

          • ScottSheldonLoans

            If the the car payment is higher than what currently is 2 to 4 months after buying the car, that will hurt your chances of qualifying based on how much higher the payment is. If the payment is lower, your chances of qualifying will be easier as the debt to income ratio will be lower. Hope that clears up for you. If not, post the current car loan payment in this forum and what the new payment will be and I can give you a more specific answer.

  • Ryan

    Looking at trading in an existing vehicle (with an active loan balance of almost $9000 at ~$250/mo) and getting a different car, but also casually at houses. Credit score is currently right around 700 and debt ratio close to 35%. Found a vehicle that would hypothetically increase my overall debt by ~$2000 after trade-in but solve some problems and lower my monthly payments by ~$50/month. If I looked at getting a house in the next few months, would it help (lower debt ratio) or hurt (credit score hit?), or be neutral replacing an existing vehicle debt and ending up in nearly the same situation?

    • Gerri Detweiler

      It’s hard to predict the exact impact to your credit scores. Therefore, my general advice in these situations is that if you qualify for the home loan you want, then put other credit needs on hold until you get the loan. If it turned out your debt ratio is just over what is needed to qualify then the lower cost vehicle might make sense.

    • ScottSheldonLoans

      If you take on additional debt with the loan you have in place, that will hurt your debt to income ratio making it higher. If your refinancing that debt, and the savings is $50 per month than that will improve your debt to income ratio. To quantify this, $50 per month lower in debt could be equivalent to about $15,000 in mortgage loan size, generally speaking.

  • LILY

    Need advice:
    Background info :
    28 years old, living in Los Angeles with my parents, salary 65k
    45k in saving, 30k in stocks, 35k in 401k
    No credit card debt or student loan debt
    Credit score : 810
    Have a remaining 25k in car loan with monthly payments of 555 with a 3.25 interest rate

    Thinking about purchasing a condo/townhouse
    Got pre-approved for 300k loan with a 3.75 interest rate
    if I pay off the car loan I can get approved for 400k

    Not sure if I am financially ready to take on a mortgage just yet but don’t want to rent. Will have someone to room with that will contribute to the mortgage payment but no other help financially.
    Also but don’t want to purchase after the feds increase interest rate.

    Should I wait to purchase property, should I pay off car loan if I purchase property, and am I financially ready…

    Thanks for taking the time to read and respond.


    • Credit Experts

      Lily —
      Unfortunately, we can’t decide for you if you are financially ready. Other considerations would be how long you plan to stay in the home you buy. From your savings, it sounds as if you budget well. You would also need a game plan if something happened to the roommate. You may not want to spend the maximum you can get approved for, either. Decide how much you feel comfortable spending and shop in that price range even if you qualify for more. Just because someone offers you a bigger loan doesn’t mean you should take it. Be sure you consider other potential costs and fees (such as HOA dues) in your budget, and that the services are worth it to you. But only you can decide if you are really ready for a home.

  • brian

    I have a question, I have 30k left in student loans. I make 100k/year pre tax (1099) and wanted to know what I could qualify for and how much could I spend on a house. I want to buy a new car (35k) but not if it prevents me from purchasing a home?

    • Gerri Detweiler

      You can get an idea of how much house you can afford with our free calculator: How Much House Can You Afford?

    • ScottSheldonLoans

      Break down for us what mortgage payment you plan to be looking at, how much the car payment will be specifically and how much the other monthly liabilities you have are just the minimum monthly payments. Identify this information for us and then I can give you a much better feel of what this might look like.

  • Jimmy Booth

    Quick question, me and my fiancée are hoping to purchase our 1st home. I only have 3 credit cards with all balances below 35% she only has student loans n one bill in collections were paying on. Credit score high 600’s (670+) income together about 65k. In metro atlanta no kid’s no car payment. is a good time to make that move?

    • Credit Experts

      Only you can decide that. Other factors, like how long you plan to stay in the area, whether your jobs are secure, etc. also come into play. You can read more about being financially ready here: Are You Financially Ready to Buy a House?

  • Ryan

    Thanks for your insightful article. My situation is a bit complicated and advice would be appreciated.
    I was financing a car that was to have been paid off by the end of this year – financing around 15000 total. Well, last week, as we were on the way to the bank to begin the process of getting pre-qualified for a home loan, an uninsured motorist T-Boned the vehicle and totaled it completely. Luckily my uninsured motorist coverage covered the cost, but left us with less than 500 dollars to make a down payment on a new car. We are in a pickle as we must have a car to go to work, and therefore must apply for an auto loan while we are simultaneously in the process of getting qualified for a home loan. I recently graduated from grad school and will begin a new job in August making around 36,000 annual gross salary. My credit score is 767. How do we proceed? Do we put a home or a car on the backburner or is is possible to apply for both loans simultaneously?
    Sincerest thanks for your advice.

    • ScottSheldonLoans

      This depends on how far out into the future it will take you to get into contract. Assuming you are just getting preapproved,to begin the house hunt, which may take months, I would probably just get the car right now. The key here is to make sure you know from the car loan provider specifically what the payment is going to be and then have your loan officer run those payment scenarios in your debt ratios to see which one allows you to buy a car while maximizing your borrowing power at the same time. This is the best course of action considering your unique circumstances. Remember the car loan scenario with the lowest monthly payment will mean the maximum amount of qualifying ability.

  • Mariana

    Can a 1300 personal loan affect my mortgage loan.

    • Gerri Detweiler

      The monthly payment on that loan will likely be included in your debt ratio. Is that what you are asking?

  • Sharon Branch

    Hello, I have a question. My Fiance’ and I are recent collage graduates and we are looking to purchase our first home within the next few months. We make about 64k a year, combined. We are secure in our jobs and the area in which we live. Minus our everyday living expenses, our debt (money that goes outside of the home) amounts to about $500 per month. He has no student loans, but I do, which are a little under $200 per month.; which I have set to auto draft as to not miss a payment. We both pay the balance of our credit cards in full each month before the closing dates. Both our FICO scores are in the upper 620’s – 670’s. However, I am in need of a new car. My current car is 10yrs old and is on its last leg. What would you advise? Getting a new car, which would help increase my credit score, or waiting until we close on a house and then try to purchase a new vehicle? Also, what do you think we could be approved for when it comes to our mortgage based off of the information above, if any. Thank you for the advice you may give.

    • Gerri Detweiler

      In the article above Scott states: Because qualifying for a car loan does not require the extent of credit analysis a home purchase does, it makes more sense to close on the house first before you buy the car. Beyond that, it would make sense for you to talk with a loan officer to see what you qualify for before you buy a car and potentially affect your chances of qualifying.

    • ScottSheldonLoans

      If do not get the car, it would appear as though you can take on at $2200 per month mortgage payment. $64,000 per year, translates to $5333 per month, using a 45% debt to income ratio the maximum monthly debt allowance would be $2400 per month,less the $200 per month in student loans, makes your mortgage payment including taxes and insurance capped at at $2200. What we don’t know is what the new payment will be on a car loan. $2200 per month can definitely support a bigger priced home depending on your market area. Without knowing that cash you have to spend on the house, this is probably the furthest I can take it for you given the information you provided.

  • QuarksBar

    I am in the process of a refi. I am on a limited income but our home payment will be low based on the amount we are borrowing. We just started to process and the loan is about to go to the underwriter. No problem on the appraisal as the LTV is way low. We now need a car. Should we wait until the loan closes?

    • Credit Experts

      If you can, it would be a very good idea.

      • ScottSheldonLoans

        I second that!

  • JPNM

    Quick question, my love-in girlfriend is thinking of buying her own place in December of 2016. We would use my current home as a rental property. Her name is not associated with my mortgage, however, she is in the market for a new car since she hasn’t bought a new one since graduating in 2008. Would her buying a car now negatively affect her credit score even though it more than a year out until she buys a house?

    • Credit Experts

      A year should be plenty of time for her score to recover. And although multiple inquiries for a car loan are supposed to count as a single, she might want to be especially careful here. She might choose to get a loan approved at a bank or credit union before she shops, and go with that, rather than shop it at the dealer for a potentially lower rate to avoid the risk to her score. (See An Auto Loan Inquiry Dropped My Credit Score 80 Points)

  • Britt

    I have a car loan and pay 400 a month. I’ve only had the car 6 months. My credit score is around the 570-590 range. Medical/doctor bills is the majority of what’s on my credit now. I also currently rent my apartment for 488 a month and have lived here 5 years. I also had a car loan from 2006-2013 which all payments were paid on time. My Significant Other also has a car loan and pays around 350 a month. His credit score is in the 520-540 range. I make about 1700 a month and him about 2500 a month. What are our chances of getting a house together with both of us on the mortgage with our credit scores, income and car loans? What would be the best way to do this?

    • Gerri Detweiler

      Britt – A great place to start would be with a housing counseling agency that offers homebuyer classes. Many of these non-profit organizations also provide credit review services. It sounds like you may need to get your scores up a bit more before you are ready to buy but they should be able to walk you through the process. Find HUD- approved housing counselors here.

      You may also want to check out this tool: How Much House Can You Afford?

  • John Doe

    Quick question, I had an auto loan where I had multiple late payments that obtained in 2008. I obtained a new loan in June 2012 for a new car and traded that one for another vehicle in April 2014. Since June 2012 through today, I have not missed a payment in the last two vehicles I’ve purchased so my Auto Loan is perfect for the last 37 months. However, the first loan (from 2008), still shows up on my report even though it was paid in full in June 2012. My question is, will it stay on my report until December 2019 (7.5 Yrs)? In addition, would it help if I disputed this with the reporting agencies since its been paid off and try my luck to see if it is possibly removed? Hopefully my question makes sense.

    • Credit Experts

      You can always ask. Paying off a loan doesn’t remove the reports of late payments, though. However, the recency of the late payments can also make a difference, and the impact fades with time. The more positive history you have (and the more time that goes by), the less this should matter.

    • ScottSheldonCaliforniaLender

      Disputing the previous debt will be problematic for your loan. Don’t dispute anything. Lenders usually cannot let alone close escrow with an open dispute on any current or former obligation.

  • Cheryl Nafo

    My question is we have just purchased a home and have a move in date set. We have just recently purchased a new vehicle (after the approval of the house went through). We still need to go down and sign the mortgage papers with the lender. If we have everything approved and a move in date set and only the paperwork to sign , do they typically go back and check if we have taken out any new loans ect … Or is the approval and credit running done ?

    • Gerri Detweiler

      Yes, your credit reports will likely be checked again. Talk to your loan officer and let him or her know right away so they can see if this affects your loan.

  • Carlos


    My name is Carlos and I would like to respectfully request your assistance.

    I am a US Navy Veteran, I proudly served for 8 years and I was Honorably Discharged.
    I lived outside the US from 2002 until 20011. When I returned to the US in 2011 I continued with my education. I was a full time student until I earned my MBA in December 2014.

    Due to the fact that I was out of the country for 9 years, I have no credit history in the US. After I graduated, I moved to Greensboro; I have been living in NC for 10 months and I am considering buying a house. I am slowly trying to build up a credit history. My credit score is 564 (Trans Union) and 633 (Equifax). I am currently employed and I have been working in the company for 4 months. My monthly salary is $2250. I am looking at houses ranging from $135,000 to $175,000. I am considering applying for a home loan with the Navy Federal Credit Union.

    What is the probability of getting approved for a home loan?

    Thank you for your advice.


    i have a car loan with $280 biweekly payments. Still 50 months left on the loan. So my biweekly payments would matter or the entire debt which is around 25k. for the mortgage

    • Gerri Detweiler

      The mortgage lender is likely going to have to translate your biweekly car payments into monthly car payments for purposes of calculating your qualifying debt ratios. Is that what you are asking?

  • christi

    hello so I have a credit score of 650. I purchased a car because I needed to living in Atlanta my monthly payments are 421. I make 3k-4k a month prior to tax. I live with my mom to save money and the only bills I have at this time are my c
    ar and the insurance. What are my chances of getting approved to purchase a home next year. Also I live in Ga is there any programs that you recommend. Also I only have one medical bill on my history, but I have a good bite od credit pulls on there. How much will this also affect me getting approved???

    • Gerri Detweiler

      I’d recommend you attend a first time home buyer class where they can help you understand whether you qualify, and if not, the next steps to take. Counseling agencies often offer these for free or at low cost. This may help:
      6 Places to Get Free Help With Your Credit Problem

  • Q

    Hello, I have a question. I helped a family member co-sign on a car loan right about the time I got pre-approved on a mortgaged. I didn’t know the magnitude as I was trying to help a family. Now, I noticed the car loan had bumped up my debt, however, I’ll not be making the payment on this loan. I’m close to having a closing date and my credit report has been run twice before now, do you think it will be run again before closing? how will this affect me closing on a home, even though I’m not responsible for the payment and the family member as a steady income to make the payments? Will having the car loan refinanced on the family member’s name make any significant difference? Thanks.

    • Gerri Detweiler

      Talk to your loan officer asap. As a cosigner you are legally responsible and it could affect your debt ratio as well as your loan. The lender will very likely pull credit again before closing. so I don’t recommend you wait and get hit with an unwelcome surprise. Your loan officer can help you figure out what to do here.

  • Alejandro

    Hello, I have a question. I have a credit score of around 750, and I am planning to buy a commercial truck for $170,000 with 20% down in less than a month. I would like to purchase a home in about a month or two, depending on the qualification process. Can I try to do both purchases at the same time, or should I wait to do the home purchase after the truck purchase. The truck purchase will be a company purchase under my name. I am not sure if buying the truck throw my company will affect my personal credit score and my purchase capability. Thank you.

  • Mike

    If we are 3 months out from buying a house, and we are looking to trade in our current car to purchase a new one with a LOWER monthly payment, would it hurt us to purchase the car now? Our credit score is good. 740

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