Can You Get a Car Loan After Buying a House?

Buying a house is often one of the biggest financial decisions a person will make in their lifetime. After securing a mortgage and moving into your new home, it’s not uncommon to start thinking about your next big purchase – like a new car But can you get a car loan soon after buying a house?

The short answer is yes, you can absolutely get approved for an auto loan after becoming a homeowner. However, there are some important factors to consider when applying for a car loan on the heels of a mortgage.

How Lenders View Auto Loans vs Mortgages

Lenders tend to scrutinize mortgage applications much more heavily than auto loan applications. This is because:

• The mortgage amount is usually much higher than the auto loan amount.
• Mortgages are secured by the home you’re buying. Auto loans are secured by the car.
• Mortgage terms stretch out to 15 or 30 years. Auto loans max out around 6 years.

Because of this, the approval process for a mortgage is far more stringent. Lenders dig deep into your debt-to-income ratio, credit history, employment history, and assets when reviewing a mortgage application.

Auto loan lenders do still look at your credit score, income, and existing debt obligations. But the approval criteria is usually more relaxed compared to a home loan

So if you’ve just been approved for a mortgage, that means you’ve already passed the most difficult lending check. Getting approved for an auto loan right after should be less problematic.

Factors That Impact Getting a Car Loan After Buying a House

While getting a car loan after a mortgage may be easier, there are still some important factors to consider:

Your Credit Score – The higher your credit score, the better your chances of auto loan approval. Excellent credit (720 score and above) unlocks the best rates and terms. After applying for a mortgage, your score could dip slightly due to the hard inquiry. But minor fluctuations probably won’t impact an auto loan decision.

Your Debt-to-Income Ratio – Lenders look at your total monthly debt payments (including the proposed car payment) compared to your gross monthly income. The higher this ratio, the riskier the loan. Excellent credit may allow ratios around 40-50%. Bad credit scores mean much lower ratio allowances.

Down Payment – The more cash you can put down on a car purchase, the better. Bigger down payments lower the amount financed, so the monthly payments will be reduced. This helps you qualify. If your mortgage down payment tapped out your savings, though, you may struggle with an auto down payment.

Loan Term – You can stretch out car loan repayment terms, often up to 72 or 84 months. But longer terms mean you’ll pay more interest over the life of the loan. It’s smart to opt for the shortest term you can afford.

Credit Inquiries – Every credit application causes a hard inquiry on your report. Too many in a short timeframe raises red flags with lenders. Avoid applying for additional credit at least 6 months before a mortgage application.

Timing – In general, it’s recommended to wait at least 6 months after a mortgage to apply for a car loan. This allows your credit to rebound and gives you time to replenish savings for a down payment.

Strategies for Qualifying for a Car Loan After Buying a House

If you need a car soon after becoming a homeowner, here are some tips that can help you get approved:

• Wait to apply – Allow at least 3-6 months between home buying and car buying. This gives your credit score time to stabilize and makes lenders more comfortable.

• Shop with your mortgage lender – See if your mortgage company also offers auto loans. They will already have all your up-to-date financial info, which streamlines approval.

• Get a cosigner – Adding a cosigner with excellent credit is an easy way to boost your auto loan eligibility. Just be sure the cosigner understands the obligation.

• Use home equity – If you have equity available, a home equity line of credit offers low rates and flexible repayment options. Use it to buy your car outright instead of an auto loan.

• Make a large down payment – Put down as much as you can afford on the car purchase. aim for 20% or higher. The bigger the down payment, the better your loan terms will be.

• Choose a shorter loan term – Opt for the shortest term you can manage cash flow-wise, even if it means a higher payment. You’ll save substantially on interest charges over the life of the loan.

• Buy certified used – Instead of brand new, look at certified pre-owned vehicles. The “new car” depreciation hit is already absorbed, but certified used cars still have warranties and often offer lower rates.

The Impact of an Auto Loan on Your Mortgage Application

If you need to buy a car a few months before closing on a home, how could an auto loan impact mortgage approval? Here are some key considerations:

• Auto loan applications generate hard credit inquiries that can temporarily drop your score by a few points. Multiple inquiries are seen as higher risk.

• Monthly auto loan payments add to your overall debt obligations. A high car payment could tip your debt-to-income ratio over the acceptable threshold.

• Taking on new debt right before a mortgage lowers your available credit and reduces your borrowing power for the home loan.

To avoid issues, try not to apply for new credit in the 6 months leading up to a mortgage application whenever possible. However, if your credit and debt ratios are strong, one additional auto loan should not make or break a home loan approval.

Using an Auto Loan to Build Credit for a Future Mortgage

For those with limited credit history, a car loan can actually help build your credit profile for a future home purchase. Here’s how it works:

• First time borrowers often have an easier time qualifying for an auto loan vs a mortgage. Lenders are more flexible on thin credit files.

• Managing an auto loan responsibly for 6-12 months establishes a positive payment history and helps raise your score.

• Having a good mix of open accounts, including an auto loan and 2-3 other credit lines, thickens your credit file.

So in the case of first time home buyers with shorter credit histories, taking on an auto loan 1-2 years prior to a mortgage application can strengthen your approval chances. Just be sure to make those car payments on time every month!

Is Buying a Car Worth Delaying Homeownership?

For some buyers, it comes down to deciding whether to purchase a home or a car first. They simply can’t afford both at the same time. Here are a few things to think about in this scenario:

• Interest rates on auto loans are higher than mortgage rates. It may make more financial sense to lock in a low mortgage rate first if home buying is a short term goal.

• Mortgages build equity over time as the loan is paid down. Cars depreciate as they age. So a house may be a smarter investment.

• Home values generally appreciate, especially in hot markets. Delaying a home purchase could mean giving up price gains.

• But if your current car is unreliable, payment-free homeownership may have to wait. Transportation is a necessity you may need to prioritize.

At the end of the day, look at your overall financial situation and timeframe for each purchase. This will help you determine the smarter move.

The Bottom Line

Qualifying for a car loan after taking on a mortgage is certainly possible with good credit and sensible repayment terms. While lenders will look at your obligations closely, auto financing standards are more flexible overall.

The keys are allowing some time between purchases for your credit to stabilize, limiting other new credit applications, and bringing a substantial down payment. Follow these guidelines, and buying a car to go along with your new house should be smooth sailing!