Auto Loan

Auto Loan And How It Affects Mortgage Loan Approval

Gustan Cho Associates are mortgage brokers licensed in 48 states

This BLOG On Auto Loan Affect How It Affects Mortgage Approval Was UPDATED On April 29th, 2019

These days new car prices can easily surpass the $30,000 mark. Car Loans and Student Loans are the two largest impact in debt to income ratios when qualifying for mortgage loans. The average car loan is $350 dollars per month. This equates to a $70,000 mortgage. Many car buyers do not realize this and often purchase a vehicle prior to buying a home. Never buy a new vehicle if home buyers are intending in qualifying for a mortgage in the near short term.

  • Many folks do not have $30,000 saved so the majority of new car buyers get an auto loan when purchasing a new vehicle
  • Used car prices are also very expensive
  • Consumers who want to get any vehicle that is newer and in good running condition that is reliable can expect to over $10,000 plus for it
  • Again, a car loan will most likely be necessary

Auto Loans Have Great Impact On Home Loans

Automobile loans are not like mortgage loans in the sense that they are shorter-term loans.

  • Mortgage loans are amortized over 30 years
  • Automobile loans are normally amortized over 3 to 5 years so the payments are high
  • For example, a typical new vehicle is over $30,000
  • Buyers who were to put $3,000 down payment on a $30,000 car and finance $27,000, the monthly payment will be $512.62 per month at a rate of 5.25% interest rate
  • $512.62 per month is equivalent to a $104,204.11 mortgage loan amount at a 4.25% mortgage rate amortized over 30 years
  • So if car buyer were to purchase a $30,000 car and put down $3,000 and finance $27,000 to yield a car payment of $512.62, that would decrease mortgage loan qualification amount by $104,204.11
  • Many home buyers who recently purchased a new vehicle have trouble for qualifying for a mortgage loan on the home they want
  • This is because their auto payment really affects their debt to income ratios when qualifying for home loans

Auto Loan Basics

In most states, when consumers get an auto loan, the auto finance company holds the title until they made last auto loan payment.

  • Once consumers have paid auto loan in full, then the auto finance company turns over the title to the owner
  • Those who default on auto payments, the auto gets repossessed and sold at a car auction

Auto Depreciation

If the auto is sold less than the balanced owed, the auto finance company can go after for the deficiency.

  • Auto owners who do not pay and the auto loan company realizes that they have a job and assets, they can file a lawsuit and try to get a judgment from the courts
  • Once they have a judgment they can come after consumer by garnishing wages or seizing bank accounts
  • All autos financed by an auto finance company requires owners to have mandatory full coverage auto insurance so in the event of theft, accident, or vandalism

How Difficult Is It To Get An Auto Loan?

It is not too difficult to get financing on a vehicle.

  • Consumers with bad credit, the finance company will likely require to put more money down
  • For those with perfect or great credit, they can get an auto loan with very little or no money down
  • An auto loan finance company will report auto loan payment history to all three credit reporting agencies
  • Making payments on time on an auto loan is a great way of re-establishing credit for those who have bad credit and want to re-establish credit
  • Late on auto loan monthly payments, credit scores will suffer
  • It will also be reflected on the credit report
  • Can have negative consequences on you getting future credit when applying for a mortgage

If Intending In Buying Home Buy Car Later

As mentioned earlier, a car loan will greatly impact debt to income ratios when it comes to qualifying for a mortgage. This is because car loans are shorter-term loans.

  • Most auto loans are amortized over 3 to 5 years so an average automobile loan payment is normally $500 per month
  • A $500 monthly payment is equivalent to a $100,000 mortgage
  • Those who have a reliable vehicle and are intending in buying a new car but also are thinking of purchasing a new home, get the new home first and get the car after you have purchased a new home

Gustan Cho Associates Mortgage Group are direct lenders with no overlays on government and conventional loans. FHA Loans allows up to a 56.9% back end debt to income ratio. Auto Loans and Student Loans are the two largest deal killers for home buyers with higher debt to income ratios. 

Home Buyers who are considering trading in their vehicle to a new vehicle, contact us first before making any moves at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at

By Gustan Cho

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