Does Getting a Car Loan Affect Your Chances for Getting a Home Loan?

Mortgage lenders consider a wide variety of factors when underwriting your home loan. Any change in your finances or your credit history can affect your mortgage interest rate or even disqualify you from getting a mortgage at all. Adding a car loan to your obligations might affect your mortgage, depending on the overall state of your finances.

Credit Inquiries

Getting a car loan results in a credit inquiry being added to your credit report. Each credit inquiry generally lowers your credit score by five points or less, but it can be more if you don't have much credit history or if you have had many inquiries in the last year. If you were preapproved for a home loan, this also resulted in a credit inquiry. When a lender makes a final credit inquiry, these two inquiries will both factor into the credit score that determines your interest rate.

Other Credit Effects

Each new credit account that appears on your credit report hurts your credit score for at least a few months and usually more like a year. The new car loan will affect the portion of your score that considers your new credit accounts and will decrease your average credit account age, both of which result in a slightly lower credit score. In addition, because your car loan balance is still high and is so close to the original amount you borrowed, this will hurt the part of your score that looks at account balances.

Front-end Ratio

Your front-end ratio is the ratio of your monthly housing payment to your monthly gross income. In general, lenders like to see a ratio of 28 percent or less. Your monthly housing payment is the sum of your principal, interest, property taxes and insurance. If your credit score decreased when you got the car loan and forced you into a higher interest rate bracket, this will result in higher monthly principal and interest payments. If you were near a ratio of 28 percent before the car loan, this could edge you over 28 percent and disqualify you from the loan. You would need to reduce the mortgage amount by making a larger down payment or buying a less expensive home to qualify.

Back-end Ratio

If you carry a lot of debt besides the new home loan, adding a car loan could tip your back-end ratio over the allowable 36 percent. The back end ratio is your total of all debt obligations divided by your monthly gross income. Your total debt obligations include your projected monthly housing payment and all other long-term debts, including credit card minimum payments, student loans and car loans. For example, say you make $5,000 per month and are looking at housing payments of $1,250 per month. You also have a student loan payment of $325 per month and a credit card payment of $100 per month, bringing your back-end ratio to $1,675/$5,000, which is 33.5 percent and within most lenders' allowable limit. However, if you add a car payment of $400 per month, your ratio will be $2,075/$5,000, which is 41.5 percent, which will disqualify you from getting a home loan with most lenders.

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