If you’re planning to buy a home, that new vehicle could have a bigger impact than you realize. A car loan can affect your mortgage approval because lenders look at your existing monthly debt obligations when determining how much you can afford to borrow.
That means a large car payment could reduce the mortgage amount you qualify for.
Watch my video or read on for more details:
How Does A Car Loan Affect Your Mortgage Approval?
When you apply for a mortgage, lenders look at more than your income. They also consider how much of that income is already committed to other debts.
A monthly car payment is included in those calculations.
Today, it’s not unusual to see vehicle payments of $1,200, $1,300 or even $1,400 per month. If your spouse also has a car payment, the combined monthly obligation can become significant.
That’s money a lender knows you won’t have available for your mortgage payment.
Two Car Loan Payments Can Add Up Quickly
Consider a household where one person has a $1,300 monthly vehicle payment and the other has a $600 payment.
That’s $1,900 every month going toward vehicles before considering a mortgage, property taxes, utilities, credit cards or other expenses.
Even with a good household income, those payments can affect your borrowing power.
Buying A Home Soon? Consider The Car Purchase Carefully
If homeownership is one of your priorities, less debt generally gives you more flexibility when it comes time to qualify for a mortgage.
That doesn’t mean you can’t buy a car. It means the timing and size of the loan are worth considering.
Keeping the vehicle payment as low as possible, buying a less expensive vehicle or paying cash when that makes sense for your finances can leave more room in your budget for a home.
Talk To Your Mortgage Broker Before Getting The Car Loan
One of the easiest mistakes to avoid is taking on a large new loan shortly before applying for a mortgage.
I’ve worked with buyers who were considering vehicle purchases that could have changed what they qualified for. Running the numbers first can tell you how a new payment would affect your mortgage options before you commit to it.
If you’re planning to buy a home in Edmonton, talk to me before taking on a new car loan. We can look at the numbers and make sure you understand the impact.
Whether you are preparing to buy your first home or your fifth, if you’re looking to get pre-approved for a mortgage in Edmonton, fill out my online application. I’m here to help you every step of the way.
About Jason Scott, Edmonton Mortgage Broker
Looking for a personalized mortgage solution? As an Edmonton Mortgage Associate, I’m trusted partner who will help you get the right mortgage for your home or investment property. I’m Jason Scott, and I’ll be your Mortgage Broker in Edmonton.
