Auto Loans Can Stall Your Dream of Owning a Home
Qualifying for an auto loan is a huge marker of financial stability, and you’d think it’d be the logical precursor to qualifying for a home loan or mortgage. Technically, it is, but only if there’s a sufficient amount of time between loan applications and you’ve handled your car loan responsibly. Apply too soon for a mortgage after you’ve purchased a new car or have a record of late or missing loan payments and you might find getting approved for a mortgage nearly impossible.
“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,” according to Credit.com Writer Scott Sheldon.
How To: Calculate auto payment
Now some lenders will take a chance on you if have an auto loan, according to Trulia.com Writer Virginia C. McGuire, because they represent “secured debt.”
“In some cases, auto loans raise your credit score by diversifying the types of debt you carry. And because auto loans are harder to get than credit cards, some mortgage lenders may look favorably on you because you’ve already been approved for a loan that wasn’t a slam-dunk,” reports McGuire.
Of course, just by having an auto loan doesn’t automatically give you the green light to a mortgage. Auto loans, as well as any loan you acquire, have a tangible influence on your credit score. If you’ve been reckless or irresponsible with your loan payments, your credit score will be less than desirable.
“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,” according to Sheldon. “Conversely, late auto loan payments can destroy a credit score, which can kill your chances of getting a mortgage.”
Check Out: 2018 Dodge Durango
If there is no way around purchasing a new car and a new home in a relatively short time, assuming you have a spotless auto loan payment history and favorable credit score, you might want to consider buying a car that has some miles on it.
“Most cars depreciate in value very quickly, so buying a one- or two-year old used car can save you between $5,000 and $15,000 (assuming the car cost $25,000 new). This would considerably improve your debt-to-income ratio and allow you to qualify for a larger mortgage, while still allowing you to own nice, almost new cars,” reports TheBalance.com Writer Deborah Fowles.
If you have aspirations of parking your new car into the garage of your new home one day, make sure you’ve got a handle on your current loans today.