Debt-to-Income Ratios and Car Payments

When determining your ability to qualify for a mortgage, a lender looks at what is called your “debt-to-income” ratio. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and homeowner’s association fees, if any. It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and…car payments.

Do not make the mistake of purchasing a new car in the midst of obtaining financing for a new home. Even after you’ve been “approved” the lender can still deny your loan just before closing if they believe you have increased your debt-to-income ratio. Wait till after closing to make any large purchases or take on any additional debt.