Mortgage With Auto Loan And How It Affects Debt To Income Ratios
This Article On Mortgage With Auto Loan And How It Affects Debt To Income Ratios Was PUBLISHED On July 8th, 2019
Mortgage With Auto Loan: Negatives In Qualifying For Mortgage With Auto Loan:
- Home buyers who are thinking of buying a home in the very near future need to consider about qualifying for a mortgage with auto loan
- Automobiles are not cheap and most consumers who purchase autos, whether they are brand new autos or used autos, need auto loans
- Not too many folks have the cash to purchase a reliable automobile that is dependable
- Average reliable used autos can easily run $20,000 to $30,000 plus
- The monthly auto payments can easily surpass $400.00 per month
- An automobile loan will be the largest monthly payment consumers will have besides their rent and/or mortgage payment
- Having a larger auto loan can affect the home buyer’s purchasing power with a new home purchase
In this blog, we will discuss Mortgage With Auto Loan And How It Affects Debt To Income Ratios.
Why Can Auto Loans Be Negative When Qualifying For Mortgage
Everyone needs an auto these days.
- Having a dependable auto is a necessity
- People need dependable autos to drive to work and make daily errands such as shopping, taking kids to events, or for dozens if not hundreds of reasons too numerous to mention
- An auto purchase is a large ticket purchase
- New automobiles can easily cost over $30,000
- Some automobiles such as 4 by 4’s, trucks, SUV’s can easily cost over $50,000
- Unlike a home purchase, an automobile purchase is not an investment
- The minute you drive that new car off the car lot, the value of your vehicle will plummet by 20% or more and will continue depreciating as you add more miles on your vehicle and as time passes
- Most folks who have an auto loan on a brand new car will be upside down for many years ahead
- They will have no equity in their vehicle where they cannot refinance their auto loans like they are able to refinance their home loan
Homes normally appreciate in value over time. Automobiles depreciate over time and depreciate rather fast.
How Much An Average Auto Payment Affect Home Buying Power
An average car loan is $20,000 and the average monthly car payment on that $20,000 loan is $300 per month.
- Auto Loans are normally amortized over 3 years to 7 years whereas a home loan is amortized over 30 years
- The shorter amortization schedule means that the consumer will have a larger payment
- For example, a $20,000 home loan amortized over 30 years is equivalent to around $100 per month where a $20,000 automobile loan amortized over 5 years is around $300 per month
Amortization On Auto Loans Versus Home Mortgages
The auto payment is three times more in monthly payments than a home loan payment due to the shorter amortization schedule.
- This article was not written to scare off homebuyers with auto loans but to make consumers who already have auto loans to be aware of how big of a deal is to qualify for a mortgage with auto loan
- If you are thinking of purchasing a home in the near future and currently have an auto loan and are thinking of trading your vehicle in and get a larger loan, you should consider holding off in doing the trade in until you have closed on your home loan
Trading In Your Vehicle During Mortgage Process
If you currently have an auto loan and are in the mortgage process and are thinking of trading in your vehicle, you can do so where it may actually benefit you.
- It may be a good idea to trade in your vehicle and lessen your monthly auto payment if you are a home buyer with high debt to income ratios
- Mortgage lenders do not care about the auto loan balance and are only concerned with your monthly payment
- For example, if you have a $100,000 auto loan on a Ferrari and your payments are $200 per month, this is much better for mortgage qualification that if you were to have a $30,000 Honda with a monthly payment of $500 per month
- The auto loan balance is immaterial when it comes to home mortgage debt to income ratios
So trading in your older car with a $500 per month payment to a brand new vehicle that is three times the value where you can extend the payment terms to 7 years at $300 per month would be much better for your debt to income ratios when qualifying for a home loan.
Co-Signing For Car Loan
Co-Signing for an auto loan will affect your debt to income ratios when buying a home.
- It is very difficult to say no to a loved one when they ask you for co-signing for them on a car loan
- However, if you are intending in qualifying for a mortgage loan in the near future, co-signing for a car loan can affect you where it may limit you on the maximum mortgage loan amount you can qualify
- Even though you are not responsible for making the monthly car payment, lenders will count the monthly car debt against you when qualifying for a mortgage loan
Excluding Co-Signed Loans From DTI Calculations
One way where the monthly car payments on a co-signed car loan can be exempt from debt to income ratio calculations is when the main borrower has made timely payments for the past 12 months. The main borrower needs to provide proof via 12 months canceled checks and/or bank statements showing the monthly withdrawal and/or money transfer from the borrowers’ bank account to the automobile finance lenders bank account. This will only work for co-signed loans. Consumers who purchase a vehicle on their name as main borrowers and not co-signers cannot get the monthly car payments exempted for debt to income ratios even though others are making payments on the car note.