Will Purchasing A New Car Affect My Mortgage Application?

“I’M IN THE PROCESS OF REFINANCING MY MORTGAGE AND LAST WEEK MY CAR DIED. I CAN’T BE WITHOUT A CAR, SO I NEED TO BUY A NEW ONE AS SOON AS POSSIBLE. IS THIS PURCHASE GOING TO AFFECT MY HOME LOAN APPLICATION?”

Unfortunately, it probably will have an effect on your home loan application. Whether you’re buying a home and getting a new mortgage or refinancing your current mortgage, any large purchase you make can have a negative effect on your loan approval. Since a typical car loan has a monthly payment of around $300 to $400 (for a new car), taking on a large monthly payment could raise your debt-to-income ratio to an unacceptable limit in the eyes of your lender. Even if you were to pay cash for a new or used car—rather than financing it—your bank account balance will take a hit and your loan approval could still be affected. If at all possible, try to wait on buying a new car until after you’ve closed on your new loan—even if that means having to get a short-term rental car or borrowing a car from a friend or family member (or using mass transit). If push comes to shove and you must buy a new car, talk to your lender before you buy and make them aware of your situation. Most lenders will try to work with you, but if they’re left in the dark, your loan approval may very well be denied. ∆