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Buying a New Car Before Mortgage

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YoungMoney06
Frequent Contributor

Buying a New Car Before Mortgage

Ah yes- the historical question/debate over purchasing a new card just before acquiring a mortgage.

 

Would like to hear from those who have had experience, or even any mortgage UW's who may be on this forum- what is it about purchasing a vehicle before obtaining a mortgage that has always been dreaded?

 

I've always been under the impression it's primarily because of the impact to your DTI that the new auto loan creates. Is this true? If so, does purchasing a vehicle within a certain DTI percentage considered "OK"? For instance, monthly income of $5000 a month and car payment of $500 would mean a DTI of 10%.

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RobynJ
Established Contributor

Re: Buying a New Car Before Mortgage

I personally believe it's because of three reasons. 1-DTI, 2-Inquiries (score lowers) 3- AOYA (also lowers your score plus looks like seeking credit)

 

So all in all it can risk you being approved. Everybody's credit is different though. A thick solid file I would think it would pose less risk vrs a young thin file. 

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Message 2 of 6
IamWesty12
Frequent Contributor

Re: Buying a New Car Before Mortgage


@YoungMoney06 wrote:

Ah yes- the historical question/debate over purchasing a new card just before acquiring a mortgage.

 

Would like to hear from those who have had experience, or even any mortgage UW's who may be on this forum- what is it about purchasing a vehicle before obtaining a mortgage that has always been dreaded?

 

I've always been under the impression it's primarily because of the impact to your DTI that the new auto loan creates. Is this true? If so, does purchasing a vehicle within a certain DTI percentage considered "OK"? For instance, monthly income of $5000 a month and car payment of $500 would mean a DTI of 10%.


@YoungMoney06 I also have wondered this.  I get what reasons you mentioned and what @RobynJ posted.  Like we all know, YMMV but what about the homebuyer who has been approved by a different mortgage?  FOr instance I have been recently pre-approved for a USDA 502 Direct mortgage with a max of $331K.  This loan doesn't require me to have any down payment nor do they go through a traditional bank or fin tech.  The govt backs this mortgage so for all these reasons it doesn't seem that getting a new vehicle would effect a mortgage.  I will also state, I have never purchased a home before and truly don't know a thing about the buying process so I am a bit naive about it all. 

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Message 3 of 6
Mortgage-Specialist
Established Contributor

Re: Buying a New Car Before Mortgage

You're correct in your debt ratio calculation. Just got to figure in your debt ratio when including the car payment along with your house payment (principal, interest, property taxes, insurance, mortgage insurance

 

Other things to consider

1) Inquiries/potential reduce in credit score (should be minimal)

2) How long will it take for the car payment to show on your credit report if you're buying  home within a month or so of your car purchase? If within 5 weeks it might not show on your credit report so you'd have to provide all of your vehicle paperwork

 

It's really not the end of the world for someone to buy a car prior but I would have this conversation with your loan officer first so they can run your pre-approval with an over exaggerated estimated car payment in your debt ratio to be sure. 

Message 4 of 6
Harvey26
Valued Contributor

Re: Buying a New Car Before Mortgage

@YoungMoney06 I actually had to do this in Jan but I already had a car note and my LO just said make sure I dont exceed my current note. Otherwise had the greenlight. 

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Message 5 of 6
FLLGuy
Frequent Contributor

Re: Buying a New Car Before Mortgage

@YoungMoney06Personally I would be pragmatic about it and look at it this way, what would you want your credit profile to look it's best for either, home or car? 

 

I prepared 2yrs grinding while in Bankruptcy in buying a new construction home which I closed on a few months back after i sold my old house, I did ALL humanly possible to polish my profile in order to get the best home rate without any complications, which meant no credit apps, no new car or anything that would risk lowering my score, lowering my credit aging, or having to produce endless LOE "letters of explanation" to mortgage underwriters on why along with dates - annyoing!  Only you know your circumstances, if you need a car to not lose your job in order to buy the house then by all means, get the "whip".  But if you don't need to and can manage a very easy and light credit profile looking your best suited for the ball then hold off, prioritize and get the "crib" first after you close on your new home then get the car.  Just my $.02 - wish you the best on what you choose.  




Message 6 of 6
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