Posted On Nov 15, 2024

Why You Should Buy Your Home Before Financing a New Car: A Real Talk Guide

Why You Should Buy Your Home Before Financing a New Car: A Real Talk Guide

When it comes to big financial decisions, buying a home and a car are two milestones that can shape your future. But if you’re planning to tackle both, timing matters. Locking down your mortgage before financing a car is often the smarter move, and here’s why.


How Car Payments Can Mess with Your Mortgage Plans

When you apply for a mortgage, lenders focus on your Debt Servicing Ratio (DSR). This is a fancy term for how much debt you’re carrying compared to your income. Think student loans, credit cards, and—you guessed it—car payments.

Here’s the kicker: a car loan isn’t just that shiny monthly payment the dealership advertises. Add gas, insurance, and maintenance, and suddenly your budget takes a serious hit. Lenders notice this, and it could mean:

  • Reduced Borrowing Power: That car loan may shrink how much house you can afford.
  • Mortgage Approval Challenges: Lenders might even deny your mortgage if your DSR is too high.

The bottom line? Even a modest car loan can put a wrench in your homebuying plans.


Why Timing Matters: Home First, Car Later

We get it—there’s nothing quite like driving off in a new car, windows down, playlist on point. But if you’re in the market for both a house and a car, here’s why it’s smart to prioritize your mortgage:

1. Lenders Care More About Housing Debt

Your mortgage is a big deal, and lenders give it more weight than a car loan. If you’re already juggling car payments, it can lower the amount they’re willing to lend for your home. Spoiler alert: this usually doesn’t work in your favor.

2. Homes Build Wealth, Cars Don’t

Houses tend to increase in value over time, while cars? Not so much. The second you drive off the lot, a car starts losing value. By focusing on a home first, you’re prioritizing an investment that builds equity and grows your wealth.

3. Car Deals Are More Flexible

Good news—once your mortgage is sorted, financing a car is much easier. Dealerships love offering incentives like low payments and cash-back deals. It’s way simpler to balance car payments after your home loan is in place.