How Car Finance Affects Your Mortgage
Car finance can affect your mortgage, or your mortgage can be affected by car finance, either way car finance affects mortgages. Owning a car is certainly a priority for most people and it is usually the first big purchase you probably make in your life. However, most individuals do not know that monthly car payments can prevent them from getting the mortgage they require to purchase their dream home.
Since cars are a necessity, most individuals usually purchase them without thinking about the future. Getting that Audi you have always wanted and the ability to make monthly payments are the only things you might be considering when it comes to buying it through financing. And while this is okay if you are not planning to make any investments in the near future, it could be a serious issue if you are looking to buy a home. Securing a car loan that you cannot afford to make payments on, or takes up too much of your income will have a negative impact on your chances of getting approved for a mortgage.
That being said, here’s what you need to know before you resort to car financing.
Why Does Car Finance Affect Your Home Loan Application?
Lending institutions have lending criteria which you must follow in order to qualify for a mortgage. The aim of these requirements is to minimize the risk to the lending institution. Simply put, the lender wants to be as confident as possible that you’ll be able to make the monthly payments and that you will not default on the mortgage.
When applying for a home loan, you’ll need to provide personal information including your financial status. You will have to provide documents regarding your assets, bank accounts, monthly income and other ongoing payments. This is how they will determine whether you can be able to make the payments or not.
Well, car loan repayments tend to reduce the amount of money left to service a mortgage. In other words, they take a toll on your disposable income and influence how much you can borrow to purchase a property.
Purchasing a Car Will Have an Impact on Your Credit Score
Regardless of how you view it, car financing will affect your credit score, but it is up to you whether it is positive or negative. Making car loan payments on time will have a positive effect on your credit score which will ultimately help you qualify for a home loan. On the contrary, if you make late payments, then it will have a negative impact on your credit score, which will, in turn, hurt your chances of qualifying for a mortgage.
If you are planning to buy a home in the future and need a car today, then you should consider car financing as a tool that will help you increase your chances of being approved for a home loan.
More often than not, you are required to have a credit score of 700 or more to qualify for a home loan. Therefore, you should keep this in mind when deciding whether car financing is ideal for you or not.