The Marquee Loop, Mortgage Myths: Car Payments

The statement “You can’t get a mortgage if you have a high car loan payment” is not entirely accurate and can be considered a mortgage myth. While having a high car loan payment can affect your debt-to-income ratio, which is an important factor in mortgage qualification, it doesn’t automatically disqualify you from obtaining a mortgage. Here’s a more nuanced explanation:

Debt-to-Income Ratio (DTI): Lenders assess your debt-to-income ratio, which is the percentage of your monthly income that goes toward debt payments. This includes your potential mortgage payment, car loan payment, credit card payments, and other monthly debts. Generally, lenders prefer a lower DTI ratio, typically below 43% for most conventional mortgages.

Impact on Mortgage Approval: A high car loan payment can impact your DTI ratio, reducing the amount you qualify for in terms of mortgage amount. Lenders consider your overall debt picture and your ability to comfortably afford all your debt obligations, including the mortgage.

Mitigating Factors: Your overall financial situation is crucial. If you have a high car loan payment but still maintain a reasonable DTI ratio and have a stable income, you may still qualify for a mortgage. Lenders consider various factors such as credit score, employment history, savings, and other assets when evaluating mortgage applications.

Strategies to Improve Mortgage Eligibility: If your high car loan payment is affecting your DTI ratio or mortgage approval, there are steps you can take to enhance your eligibility. For instance, you could consider paying off or refinancing your car loan to lower the monthly payment. Alternatively, you can work on reducing other debts or increasing your income to improve your DTI ratio.

It’s essential to consult with a mortgage professional who can evaluate your specific financial situation, assess your DTI ratio, and guide you on the best course of action to increase your chances of mortgage approval. Each lender may have different criteria and requirements, so it’s important to explore various options and find a solution that fits your needs.