Mortgage  Question?
Should I get new car loan before I apply for mortgage?

Should I get a new car loan with a lower monthly payment to improve my debt-to-income ratio before I apply for a mortgage? I can save $250 a month with a new car loan.

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

In general, lowering your monthly debt payments to improve your debt-to-income ratio before you apply for a mortgage is a good idea. In your case, reducing your monthly car loan payment by $250 should enable you to qualify for a larger mortgage amount because you can afford to spend more money on your mortgage payment. In short, with a debt-to-income ratio, the lower your monthly debt payments the more mortgage you can afford. We provide a comprehensive overview of borrower debt-to-income ratios for a mortgage on FREEandCLEAR.

There are a couple of points to keep in mind if you are considering applying for a new car loan and mortgage around the same period of time. First, make sure that the new car loan closes before you apply for a mortgage. We also recommend waiting one-to-two months after the car loan closes before you apply for the mortgage. This is because you want to make sure that your new, lower car loan payment is reflected on your mortgage application and credit report. Additionally, when you apply for significant loans such as a car loan or mortgage it can impact your credit score. Lenders usually check your credit score at the beginning of the mortgage process when you submit your loan application and then approximately one week before your mortgage is scheduled to close to make sure there have been no significant changes to your credit profile. If your credit score drops during the mortgage process, for example due to your new car loan, it can undermine your ability to close your mortgage or result in you paying a higher interest rate which increases your monthly payment and potentially costs you thousands of dollars in extra interest expense over the life of your mortgage.

We provide a detailed explanation of how your credit score impacts the mortgage process on FREEandCLEAR including how you can use websites like CreditKarma, and to monitor your credit score for free. We recommend checking your credit score several months before you apply for a mortgage to identify and address any potential issues in your credit profile. In your case, you can also use these websites to track any changes in your credit score after your car loan closes before you apply for your mortgage.

It is important to highlight that your debt-to-income ratio and credit score are only two of several factors that lenders evaluate to determine your ability to qualify for a mortgage. Lenders also consider your employment and residence history and apply their own underwriting guidelines. We provide a detailed overview of borrower mortgage qualification requirements on FREEandCLEAR.

Finally, we always recommend that you shop multiple lenders to find the mortgage with the lowest rate and fees. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as comparing proposals is the best way to save money on your mortgage

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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