Should You Buy a New Car if You’re Also Thinking About Buying a New Home? You May Want to Wait

You need a new car. You need a new home. But will buying the former impact your ability to buy the latter?

A recent article from realtor.com outlined the ways taking out a car loan could impact your ability to get a mortgage (and to get the best rate on that mortgage), including:

• Changing your credit score. When you apply for a car loan, it’ll show up as a hard inquiry on your credit report. While hard inquiries don’t have much of a long-term impact on your credit, in the short-term, they can lower your credit score by a few points—which, depending on your score, could jeopardize your ability to secure the most competitive rate (or to qualify for a mortgage at all).
• Changing your debt-to-income ratio. Debt-to-income ratio is one of the most important factors lenders use to determine how much house you can afford—and, as such, what mortgage amount you’re approved for. Taking out a car loan before buying a house impacts your debt-to-income ratio and can result in you getting approved for a smaller loan.
• Acting as a “red flag” to your lender. Making a big purchase (like a car) and taking on more debt prior to buying a home can be a red flag to lenders that you’re not responsible with your finances—which could impact your ability to get approved.

The Takeaway:

So, what does this mean for you? If you’re thinking about buying a new home and a new car, you may want to consider waiting to buy the car until after your home purchase is all wrapped up.