The primary factors that lenders consider when qualifying consumers for a mortgage loan are credit rating, annual income, monthly debt and amount of down payment. Buying a new car can affect your ability to get a mortgage loan, but other factors can outweigh the impact.
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Buying a new car can affect the outstanding-debt factor in your credit score calculation. Instalment loans, such as car payments, combine with revolving loans, such as credit cards, to make up your total debt. Your total debt compared with your total credit limit is your debt-to-credit ratio. This ratio accounts for 30 per cent of your credit score.
Taking out a loan for a new car within six months of applying for a mortgage loan can also affect your ability to get a mortgage. New credit accounts for 10 per cent of your overall credit score. Combined with outstanding debt, financing a new car near the time when you plan to get a mortgage can impact 40 per cent of your overall credit score.
Buying a car will affect your ability to get a mortgage if you finance the car for more than 10 months. Debts that take longer than 10 months to pay off are considered long-term debts. Long-term debts factor into the debt-to-income ratio for mortgage qualification.
According to the United States Department of Housing and Urban Development -- HUD -- the debt-to-income qualifying ratio for conventional mortgage loans is 36 per cent toward housing and other debt, such as a car loan. The Federal Housing Administration---FHA---allows a 41 per cent qualifying ratio. This means that in order to qualify for a mortgage loan, your total monthly debt for the mortgage, car loan, student loans and any other debt with scheduled payments in excess of 10 months cannot exceed 36 to 41 per cent of your total monthly income.
Even if buying a car sends your debt-to-income ratio over the limit, you may still be able to qualify for a mortgage loan. A large down payment, net worth that is at least equal to the mortgage loan, can offset a high DTI.
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