How Much Mortgage Does My Car Loan Cost Me?

March 9th, 2022

car loan

Car loans and mortgages, do they affect one another? When a mortgage lender analyzes your finances to qualify you for a mortgage, they’re looking at all of your debt along with the new proposed mortgage payment. The other debts that they consider outside of your new mortgage payment are debts like minimum credit card payments, car loans, student loans, and any losses from other rental property. They do not look at debts like utility bill payments, car insurance or cell phone bills.

Debt ratios matter

A mortgage lender will approve your loan allowing you to spend a certain percentage of your gross monthly income on your new mortgage payment and your debts.

Let’s see how much more mortgage you could qualify for if you did not have a car loan. Then you can see if paying off a car loan off  leaves you with the cash needed to  make a down payment and pay the closing costs to purchase a new property.

Or this might be helpful if you’re looking to  buy a new car  and you’re thinking about how not taking out a big car loan, or buying a car later, might be a good idea. After all, a house is more important than a car.

How Much Mortgage Can I Afford?

A typical maximum debt ratio is 43%.

An example

Let’s look at an example of how much mortgage borrowing power your monthly car loan might cost you:

  • Let’s assume $10,000 a month in household income.
  • Let’s also assume a 30 Year Fixed Rate mortgage at *4.00%, strictly for illustrative purposes. *Click here for disclosures.
  • And let’s assume that you have a car loan that is $500 a month.

A $105,000 mortgage amount at 4% on a 30 Year Fixed Rate mortgage = $501.29/month.

You can see that having a $500 monthly car payment would reduce the amount of mortgage that you could qualify for by almost $105,000 in mortgage amount. 

Conclusion – car loans and mortgages

This same discussion also applies to paying down credit card debt.

If you delayed purchasing  a car, bought a less expensive car, or did not buy a new car at all; you could qualify for quite a bit more mortgage than you would with a higher monthly car payment. 

Can paying off a debt help qualify you for a mortgage?

Getting approved for a mortgage for the right amount that you need can be complicated. Contact me to discuss your scenario in detail.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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