How Your Car (and Other Loans) Can Affect Your Mortgage Approval

You’ve probably heard the story — someone gets pre-approved for a mortgage, buys a new truck, and suddenly their approval disappears. It sounds dramatic, but it happens more often than you’d think.

Even if you’re confident you can afford both, lenders take a different approach. When you apply for a mortgage, they look at the whole financial picture — not just your income and down payment, but also every regular payment you’re responsible for. That includes car loans, student loans, credit cards, lines of credit, and other obligations.

These debts can make a surprising difference in how much you’re approved for.

How Lenders Look at Debt

To figure out what you can comfortably afford, lenders use what’s called a debt-service ratio. It compares your monthly debt payments to your gross income.

If too much of your income is already tied up in other payments, there’s less room for a mortgage — which can reduce your qualifying amount.

How Different Debts Can Impact You

Car Loans and Leases
Vehicle payments can have one of the biggest effects on your approval. A $600/month car payment can lower your mortgage qualification by about $100,000 in many cases. If you’re planning to buy a home soon, it’s worth considering whether reducing or consolidating that debt could help.

Student Loans
Even if your student loans are currently deferred, lenders still factor in an estimated payment — usually about 1% of the total balance per month. For example, a $25,000 student loan adds around $250/month to your debt load, which reduces what you can qualify for.

Credit Cards and Lines of Credit
Lenders also factor in minimum payments on revolving credit. For credit cards, they often use 3% of the limit, even if you’re paying less. That means a $20,000 balance could count as a $600 monthly payment.

Paying down balances can help free up room in your budget, but try not to close old accounts with no balance. Keeping those open can help your credit score by showing a longer credit history.

Ways to Improve Your Mortgage Affordability

Tackle balances early: Paying down revolving debt reduces your monthly obligations and can improve your credit.
Hold off on new loans: Avoid financing a new car or large purchase before applying for a mortgage.
Consider consolidation: If you’re managing several debts, combining them into one lower payment can help your ratios.
Connect with your broker early: Reviewing your situation ahead of time can show exactly how small adjustments make a big difference.

Even modest changes can go a long way in improving your approval odds. I can walk you through different scenarios — for example, what happens if you pay off your vehicle loan or reduce your credit balances — so you can see how those changes affect your qualification amount.

If a new home or refinance is on your horizon, reach out anytime. We’ll make sure you’re set up to qualify for the mortgage that fits you best.