The general recommendation is to wait at least six months to a year after buying a car before applying for a mortgage to buy a house. This waiting period allows your credit score to recover from the impact of the new car loan and helps improve your debt-to-income (DTI) ratio, which lenders closely evaluate when approving a mortgage
. Key points to consider:
- Credit score impact: Taking out a car loan causes a temporary drop in your credit score due to the hard credit inquiry and increased debt. Waiting several months helps your score rebound, improving your mortgage eligibility and interest rates
- Debt-to-income ratio: A car loan increases your monthly debt obligations, reducing the amount you can borrow for a house. Lenders typically allow only about 50% of your gross income to cover all debt payments, including your mortgage and car loan
- Financial stability: If your income and credit are strong, you might qualify for both loans more easily, but it’s still advisable to prioritize buying a home first if possible. This avoids complicating your mortgage approval with new debt
- Mortgage application timing: Avoid taking on new debt, like a car loan, within six months before applying for a mortgage. Also, do not buy a car after mortgage approval but before closing, as this can jeopardize your loan approval
In summary, if you buy a car first, waiting about six months to a year before buying a house is ideal to allow your credit to recover and maintain a favorable debt-to-income ratio. If you can, buying the house first and then the car after a few months is often the better financial strategy
