• Sign in
  • |
  • Sign up

Ask an expert: Applying for a mortgage and car loan

RELATED READING
RESEARCH BY MAKE
Honda cars, trucks and SUVs Nissan cars, trucks and SUVs Ford cars, trucks and SUVs Toyota cars, trucks and SUVs Lexus cars, trucks and SUVs Acura cars, trucks and SUVs Hyundai cars, trucks and SUVs Mercedes-Benz cars, trucks and SUVs
Acura cars, trucks and SUVs Alfa Romeo cars, trucks and SUVs Aston Martin cars, trucks and SUVs Audi cars, trucks and SUVs Bentley cars, trucks and SUVs BMW cars, trucks and SUVs Buick cars, trucks and SUVs Cadillac cars, trucks and SUVs Chevrolet cars, trucks and SUVs Chrysler cars, trucks and SUVs Dodge cars, trucks and SUVs Ferrari cars, trucks and SUVs FIAT cars, trucks and SUVs Ford cars, trucks and SUVs Freightliner cars, trucks and SUVs GMC cars, trucks and SUVs Honda cars, trucks and SUVs Hyundai cars, trucks and SUVs Infiniti cars, trucks and SUVs Jaguar cars, trucks and SUVs Jeep cars, trucks and SUVs Kia cars, trucks and SUVs Lamborghini cars, trucks and SUVs Land Rover cars, trucks and SUVs Lexus cars, trucks and SUVs Lincoln cars, trucks and SUVs Lotus cars, trucks and SUVs Maserati cars, trucks and SUVs Mazda cars, trucks and SUVs McLaren cars, trucks and SUVs Mercedes-Benz cars, trucks and SUVs MINI cars, trucks and SUVs Mitsubishi cars, trucks and SUVs Nissan cars, trucks and SUVs Porsche cars, trucks and SUVs RAM cars, trucks and SUVs Scion cars, trucks and SUVs smart cars, trucks and SUVs SRT cars, trucks and SUVs Subaru cars, trucks and SUVs Tesla cars, trucks and SUVs Toyota cars, trucks and SUVs Volkswagen cars, trucks and SUVs Volvo cars, trucks and SUVs
RESEARCH BY STYLE
AWD/4WD
Commercial
Convertible
Coupe
Hatchback
Hybrid/Electric
Luxury
Sedan
SUV/Crossover
Truck
Van/Minivan
Wagon

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 bebad for your credit score?

A: Applying for a car loan and a mortgage at the same time can sometimes be difficult, but it depends on your circumstances.

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 want to 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, therefore, 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 yellow flag for lenders when they check your file. Also, it's important to note that FICO scores calculated from older versions of the scoring formula use a "shopping period" of just 14 days, while scores calculated from the newest versions of the scoring formula have a 45 day span for the shopping period. The version of the scoring formula used to calculate your FICO score varies by lender.

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.

If you’re applying for mortgage refinancing rather than a brand-new home loan, you could solve this problem by considering cash-out refinancing. With this option you may be able to get a better rate and better terms on your mortgage, while also tapping into your equity to get additional money for your car purchase. For example, if you owe $60,000 on a $160,000 house, you could refinance your mortgage for $90,000. The lender would then hand you $30,000 that you could use to pay for your vehicle.

To find the right auto loan for you, visit lendingtree.com, the preferred auto loan provider for AutoTrader.com.

Provided by LendingTree.
Copyright 1998-2008, LendingTree LLC. All rights reserved.


This image is a stock photo and is not an exact representation of any vehicle offered for sale. Advertised vehicles of this model may have styling, trim levels, colors and optional equipment that differ from the stock photo.
Close 
Ask an expert: Applying for a mortgage and car loan