How Buying a Car May Affect Mortgage Approval
Buying a car may affect mortgage approval for potential homebuyers. Many homebuyers often do not think about how buying a car may affect mortgage approval. To many, it is common sense to buy a car first before buying a house.
Unfortunately, buying a car may affect mortgage approval and limit how much house you can buy. An average brand new car payment these days is $600.00. A $600 monthly payment is for nothing fancy.
For most people, the norm is to get high-ticket items such as a new vehicle, expensive appliances, furniture, and other necessities prior to closing on the house. In the mortgage world, this is not the way it works for borrowers with high debt-to-income ratios. We will continue with our topic on how buying a car may affect mortgage approval.
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Does buying a car affect mortgage approval?
In this guide on how buying a car may affect mortgage approval, we are going to cover how an auto payment can derail your power of a house. We will also cover the ins and out of the automotive industry and how the inside of car sales work.
Buying a car can potentially affect mortgage approval. When you submit an application for a mortgage, lenders evaluate your financial circumstances, including your debt-to-income ratio and credit score.
We are not trying to bash the auto industry but want to make our viewers aware of the mentality of many car salespeople and the industry as a whole. In the following paragraphs, we will discuss and cover how buying a car may affect mortgage approval and limit your buying power.
How Buying a Car May Affect Mortgage Approval and Buying Power
You can easily have a $1,000 car payment on a brand new pickup truck or an SUV. A $1,000 monthly car payment is equivalent to a $200,000 mortgage loan balance. Therefore, if you already have a high debt-to-income ratio and barely qualify for the loan amount you are seeking, a new car payment will derail your mortgage approval.
Brand new car prices have skyrocketed due to a combination of inflation, shortage of parts, and demand for vehicles. Many homebuyers often get excited and make plans of buying a brand new car, new furniture, and other high-ticket items when planning on buying a new home.
Ways on How Buying a Car May Affect Mortgage Approval and Cause Loan Denial
Proven industry methods for the ultimate new car buying experience. The misunderstanding in the Auto Financing industry can mislead consumers into making financial mistakes that are entirely unnecessary.
Take it from me, I have twenty years of experience as a General Manager and a Finance Manager. Although currently in the Mortgage Industry my previously mentioned experience will provide a great insider’s perspective on the auto finance industry. It is time to take control of your finances and not get taken advantage of the way that most customers do in the auto industry.
Can I Buy a Car and a House at the Same Time?
The catalyst for this financial misspending is based on the fact that dealerships are out, for one thing, they wish to put as much money into their own pockets as humanly possible. And that extra cash does not just appear out of thin air, they take more money out of your pockets than you actually need to pay. How do they convince you to pay more than necessary?
Yes, it’s possible to buy a car and a house at the same time, but it requires thoughtful financial planning and evaluation of multiple factors.
They intentionally lead you into being a payment buyer. Now, this seems normal as many people have car payments, you simply check if the payment is within the budget and agree to the payment plan.
Greedy dealerships oftentimes will raise the interest rate far beyond a reasonable percentage and I hope that you are not familiar enough with auto sales to catch them in this act. Even worse for you, they will not willingly talk about interest rates before it’s time to sign for the vehicle.
And by this point, the customer is typically excited and has adrenaline over the new car they are about to purchase.
Your Car Can Affect You From Getting a Mortgage
The careful withholding of information regarding the interest rate combined with the buyer’s excited state can very easily lead to a very one-sided deal. The simple solution to this problem is to have researched what reasonable interest rates for your purchase are.
Also, put pressure on the sales representative by inquiring about the interest rate before you buy. Even bring up what you saw online and be adamant that you will not go over that amount.
What Are Rip-Offs Car Dealers Do?
They want to get as much money out of you as possible, but if you refuse to fall for the trap they still will have no problem with the sale. To them selling a car is much better than not selling a car.
And for the reasonable interest rate they will in fact sell you the vehicle, they would just prefer to rob you blind on the interest rate. But there still is another method preferable to this one in my personal opinion based on twenty years of experience.
Buying a Car Before Buying a House
The number one rule in today’s society, the internet is your best friend. Do proper research beforehand on what car you wish to purchase. Once the correct vehicle has been identified go for several test drives to insure that the vehicle works exactly as the research intended it to.
From there it is best to continue utilizing the internet. Available options include new car invoices, special finance rates, and all rebates at the buyer’s fingertips. Now let’s take a deeper look into what exactly is meant by new car invoices.
How To Buy a Car Without Getting Ripped Off?
Any reputable dealer would be more than happy to show you the invoice, it brings the deal closer to being complete and you closer to a new car. A respectable selling price is two hundred dollars below invoice less all applicable Rebates which is more than fair to both parties.
Another key factor to look into is “saving the trade”. What I mean by that is you negotiate the deal THEN tell the dealer you would also like the trade in your old car.
Will Trading My Old Car For New Car Affect My Mortgage Approval?
If you tell them about the trade immediately it can impact the negotiation process as the dealer tries to up the price in an effort to make some of the money back from the trade-in. An important note on this process, be reasonable and realistic when you tell them where you value the old car’s price.
If you ask too high they might not go for it immediately and bring it down to a lower price than it would have been if you were just asking for a realistic price.
How To Get The Best Deal When Selling Your Car?
The best tool for figuring out the value of this old car is Kelly Blue Book. It has been used more than any other tool and there is a reason for that, it has been a very reliable option with great consistency. Another factor to consider is the correct time to buy.
The secret behind this is that dealers are given a predetermined number of how many new cars they are required to sell per month. The order comes straight from the manufacturers and missing it spells nothing good for the dealer. This results in a panic-filled scramble to fill out the quota by the end of the month.
What Month Offers The Best Car Deals?
These last few days of the month are where the buyer has the most leverage in negotiation. Use this to your advantage, any good dealer is not going to reveal to you that they are desperate to sell the car to you. But if you have this fact hidden up your sleeve then you can certainly be bold and get away with it.
Using these mentioned tricks will make buying a car a much more enjoyable and financially rewarding experience. To recap: ask for the invoice, do not lead with the fact that you are trading your old car in, pick the right time to buy, use the internet to your advantage, and mind the interest rate.
Is Leasing Car Better Than Buying When Buying a House?
Basic finance would tell you to purchase items that will mature in value, and lease items that will depreciate. This goes for many things but simply put, buy a house and lease a car. So leasing a vehicle is the absolute best financial option to follow the previously mentioned steps.
It can make a world of difference on the payment of the car and thus change the amount of money in your pocket. Change that benefits you, not the dealer.
Understanding How Buying a Car May Affect Mortgage Approval
The true secret to financial success in any field, not just auto finance, is to be knowledgeable about the process and understand the motivation behind whoever is selling the product to you. The dealers you interact with are motivated by personal financial gain. And they probably will have great success in this. But using your research and knowledge of the situation, you can ensure that their gain is not your
Nothing wrong with buying a brand new car when buying a house. However, always remember that buying a car may affect mortgage approval specially for borrowers with a higher debt-to-income ratio, a new car payment can definitely derail a home purchase. Try to wait to buy a car after you have closed on your home loan.
Frequently Asked Questions (FAQs)
- How buying a car may affect mortgage approval?
Buying a car can impact mortgage approval by affecting your debt-to-income ratio and credit score. - Can buying a car before applying for a mortgage affect my credit score?
Yes, it can. Taking on additional debt for a car loan can lower your credit score, potentially impacting your mortgage approval. - How does buying a car impact my debt-to-income ratio?
Buying a car increases your monthly debt obligations, which can raise your debt-to-income ratio. Lenders typically prefer a lower ratio for mortgage approval. - Should I wait to buy a car until after getting a mortgage?
It’s generally advisable to wait until after securing a mortgage to buy a car. This can help avoid potential complications with loan approval. - Can I still get approved for a mortgage if I’ve recently bought a car?
Yes, it’s possible, but the recent car purchase may impact the amount you qualify for or the interest rate you receive on the mortgage. - How long should I wait to apply for a mortgage after buying a car?
Waiting a few months after buying a car allows your credit score to recover and allows lenders to see a consistent payment history, potentially improving your chances for mortgage approval. - Will a large down payment offset the impact of buying a car on mortgage approval?
A larger down payment can mitigate the impact of a recent car purchase on mortgage approval by reducing the loan amount and improving your overall financial picture. However, it’s still important to consider the impact on your debt-to-income ratio and credit score.
Here at Gustan Cho Associates, our expert Loan Officers can answer all your questions on how buying a car may affect mortgage approval. You can us at 800-900-8569 or text us for a faster response. You can also email us at gcho@gustancho.com or alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
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