Can You Get a Mortgage with a Car Loan? - Dream Home Financing (2024)

FAQs

Can You Get a Mortgage with a Car Loan? - Dream Home Financing? ›

Because financing a car can cause your credit scores to drop, increase your debt-to-income (DTI), and eat away at your down payment for a house, all of which make it harder to qualify for an affordable mortgage. That doesn't mean you can't get a mortgage after you buy a car, but it can make homebuying more costly.

Under the new qualified mortgage rules, your monthly debts—including your auto loan—cannot exceed 43% of what you bring home. If your auto loan pushes you above the limit, you may not qualify for a home loan.

You can get a car loan and a house at the same time. However, it is best to purchase the home first and then get the car. We suggest you do not allow the car dealer to pull your credit until after you close on your mortgage. Then, you can go from the closing on your home right to the auto dealer to purchase your car.

Credit score and mortgages

The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

FICO is an acronym that stands for: Fair Isaac Corporation, the company that developed the FICO® credit scoring. FICO® credit scores are the auto industry standard for determining a potential buyer's creditworthiness.

Because financing a car can cause your credit scores to drop, increase your debt-to-income (DTI), and eat away at your down payment for a house, all of which make it harder to qualify for an affordable mortgage. That doesn't mean you can't get a mortgage after you buy a car, but it can make homebuying more costly.

Yes, you can combine a mortgage and an auto loan by using a cash-out refinance. You need enough equity in your home to pay off the auto loan and to have 15 to 20% equity left over. Be aware that this type of loan consolidation can cost you much more in interest than if you were to refinance your auto loan separately.

As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a debt-to-income ratio lower than 36%, with no more than 28%–35% of that debt going toward servicing a mortgage. 1 The maximum DTI ratio varies from lender to lender.

If it's viable for you financially, and you'll still have reliable transportation to work, most experts recommend getting a house first. “Real estate typically appreciates over time and should be prioritized over a vehicle, if possible,” Gifford says.

Can I refinance my car with the same lender? Yes, many lenders will allow you to refinance your existing car loan. Keep in mind that lenders may not offer refinancing as an option. Especially if your vehicle is in poor condition, has low value, or you have few payments remaining on your existing loan.

What credit score do I need to buy a $250000 house? ›

You typically need at least a 620 credit score to qualify for a conventional loan. Though, the higher your score, the better your chances of getting approved for the best rates.

670–740: Good credit – Borrowers are typically approved and offered good interest rates. 620–670: Acceptable credit – Borrowers are typically approved at higher interest rates.

You can borrow anywhere from a few thousand dollars to $100,000+ with a 580 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.

There is no minimum credit score required to be approved for car finance for a number of reasons: – Different finance providers will use different third-party credit reference agencies to retrieve your credit score. A person's credit score will be different across providers as their scoring systems are unique.

A credit score is a three-digit number that measures your financial health and how well you manage credit and debt. FICO scores are a specific type of score that lenders can use when making borrowing decisions. The FICO credit scoring system is the most widely used credit score.

Most car dealerships use the FICO Score 8 scale to determine your eligibility for a loan. The FICO score is the most widely used because it is considered to be the most accurate assessment of your credit standing. It takes the scores of all three major credit bureaus to create a FICO score.

If you have a substantial amount of high-interest debt, consider paying it down before saving for a house. Any interest – but especially high-interest debt – can significantly extend your debt repayment timeline and eat away at the money you could be saving for a home.

But not everybody can do that. If you do need to buy a car and a house at the same time, know this: qualifying for a mortgage will be more difficult. If you have a good-sized down payment and little or no other debt, it'll be easier for you to manage.

In most cases, an auto loan preapproval has the potential to impact your credit. For example, if you go through the preapproval process with the lender and submit all of your information and documentation, the application will typically result in a hard inquiry, which can temporarily impact your credit score.