Should I Pay Off My Car Before Buying A House?

Anyone who feels positive about the economy and his financial situation would decide to make a big investment. We all understand the importance of savings in our life and we wish to make the most out of them.

One of the long-term investments of your lifetime is purchasing your own car. Having your own car is commonly the first thing people plan to purchase when they feel financially stable.

What Happens If You Apply For Car Loan During Mortgage?

Applying for a car loan can make it hard for you to apply for a mortgage. This is because doing so will increase your “debt to earnings” ratio. In simple words, this will increase your overall monthly debt obligations in comparison to your pre-tax earnings.

Decrease In “Debt To Earnings” Ratio Affecting Mortgage Application:

Even if you are financially stable enough to afford both, it can still be a problem. Though car become popular but purchasing a car before your house can make you fall below the mortgagee’s “debt to earnings” credit standards. This is why we believe that purchasing a car before or during the mortgage process will be a bad idea.

Should I Pay Off My Car Loan Before Buying A House?

This may sound a little confusing to you but when you plan on leasing a car, you end up decreasing your total debt obligations. The lender would suggest you reduce your auto loan debt obligations so that he can surge the dollars you will receive in order to pay for a bigger house. This will make the bank believe that the applicant has enough savings or income to pay the existing car loan. In this way, his down payment funds will not be negatively impacted. We can also use private transport if we don’t have sufficient funds for purchasing a car.

Problems That Arise If You Decide To Pay Off Your Car Loan Before Purchasing A House:

It’s important for you to consult your mortgage adviser before applying for your car loan. You should seek professional guidance before you decide anything.

Decrease In Credit Scores:

It’s important for you to keep this fact in mind that a big percentage of your credit score is concluded by reviewing your debt repayment history. This information also includes your existing outstanding debts. In the majority of the cases, the auto loans add to your credit score. However, this doesn’t help if you are overextended. As a consequence, you may end up losing a few score points if you decide to pay off your car loan.

Increase In The Interest Rate:

Another important point that you need to consider is that you will be paying a higher interest rate if your credit score drops below the threshold. So make sure you are not on the verge of a particular credit score before you apply for your car loan. Moreover, if you drop below the financing guidelines of mortgage lender it will get extremely difficult for you to get your loan approved.

Delayed Or Failed Closing Of Mortgage:

Moreover, if your loan has been pre-approved and you decide to pay off your car loan without informing your lender, you can land into trouble. This is because sooner or later your lender will recheck your credit and find out the drop in your credit score. This mistake can result in a delay or failed closing of your application.

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