You’ve probably seen the posts or heard the warnings: “Don’t buy a new truck before getting your mortgage!”
And as dramatic as that sounds, there’s truth to it. Even if you’re confident you can handle both a new vehicle payment and a mortgage — especially if your monthly housing cost won’t change much — lenders see things differently.
When it comes to qualifying for a mortgage, they look beyond your income and down payment. They also consider all your monthly debts — things like car loans, student loans, credit cards, and lines of credit — to make sure you can comfortably manage your total financial picture.
Why Your Debt Matters
Lenders calculate something called a debt-service ratio to determine how much of your income goes toward existing debt payments. The higher that ratio, the less room there is for a mortgage — which means your approval amount could shrink.
Common Debts That Affect Affordability
Car Loans and Leases
Vehicle payments are one of the biggest affordability limiters. A $600 monthly car payment can lower your qualifying amount by roughly $100,000 in many cases. If you’re close to buying, it might be worth exploring options to reduce or consolidate this debt first.
Student Loans
Even if your student loans are deferred, lenders often include a “placeholder” payment in their calculations- usually around 1% of the outstanding balance per month. For example, a $25,000 student loan adds about $250 to your monthly debt load, reducing your borrowing power by tens of thousands of dollars.
Credit Cards and Lines of Credit
Lenders typically factor in a minimum payment amount — often 3% of the limit for credit cards or the actual payment for lines of credit. That means a $20,000 credit card balance could be treated as a $600 monthly payment, even if your statement minimum is much lower.
Paying down balances can make a real difference, but avoid closing your oldest zero-balance accounts. Those long-standing accounts help show your credit history and can support a stronger credit score.
How to Strengthen Your Affordability
Here are a few steps that can make a meaningful impact on your mortgage approval:
Pay down balances: Reducing revolving debt lowers your monthly obligations and can boost your credit score.
- Avoid new loans: Try not to take on new vehicle or personal loans right before applying for a mortgage.
- Consolidate strategically: If you’re carrying significant debt, a consolidation loan can help simplify payments and improve your profile.
- Talk to your broker early: A quick review can show how small adjustments can increase your approval amount — sometimes by tens of thousands.
Even small changes can have a big impact. I can help you review different “what if” scenarios — like paying off a car loan or consolidating credit cards — so you can see exactly how those decisions affect your qualification range.
If you’re planning to buy or refinance soon, let’s connect for a quick chat about your goals and the best way to get you mortgage-ready.