Applying for a mortgage
and car loan
Q: If you apply for a
home and a car loan at the same time, will this have a
negative effect on either one? And will it be bad for
your credit score?
A: Applying for a car
loan and a mortgage at the same time can sometimes be
difficult, and it is not recommended.
If you’re applying for your first mortgage and buying
your first car, lenders will be concerned about your
ability to take on so much new debt. But if you have a
history of managing debt responsibly, and have
sufficient income to carry both loans, you should have
fewer problems.
Lenders will calculate what your debt-to-income ratio
(your monthly loan payments divided by your monthly
income) would be if you were to carry both loans, and
they’ll usually want to ensure that it’s less than 36
percent. If it’s not, and you’re still approved, you may
be charged a higher interest rate on one or both of the
loans, because the lender may perceive you as having a
greater risk of defaulting.
About 10 percent of your credit score is based on new
inquiries, and applying for several new credit accounts
in a short time may reduce your score. Because credit
reporting companies understand that people shop around
for the best rate, they treat multiple mortgage and auto
loan inquires within 30 days as a single application.
However, this applies to inquiries related to one loan,
not two. It’s possible that applying for both a car loan
and a mortgage at the same time could have a negative
effect on your credit score and be a red flag for
lenders when they check your file.
One way to reduce any potential
impact on your credit score from multiple inquiries is
to apply for the mortgage first, because that’s the
bigger cost, and after that closes, apply for the car
loan. If you do end up being charged a slightly higher
rate on the auto loan, it will be less important because
it’s for a much smaller amount.
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309-688-5568
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Laure Feld,CMPS
Certified Mortgage Planning Specialist
American Mortgage Lending, Inc.
3709 N. Sheridan Rd
Peoria, Il 61614
309-688-5568 |
MB #6906
Illinois Department of Professional Regulation
122 S Michigan Ave., Suite 1900
Chicago, Il 60603
312-793-3000 |