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Advice
Posted in: Getting a mortgage, First time homebuyer tips, Buying a home

Can you get a mortgage if you’re leasing your car?

mortage for people with car leases
Key insights
  • Paying down debt could help you obtain a home mortgage loan
  • Car lessees are unable to pay down their lease, which can make them riskier mortgage loan candidates
  • Borrowers who have a car lease can lessen their risk of being denied a mortgage by maintaining a spotless credit history

When you apply for a mortgage, the lender will look into your full financial history, including past bill payments and your credit score. They will also assess your debt-to-income ratio, which is how much you owe on monthly debts in relation to your gross monthly income.

Debt is, of course, a deterrent to many lenders. Financial experts recommend lowering your debt-to-income ratio as much as possible before applying for a home loan. To better appeal to lenders, homebuyers commonly try to pay off car loans, student loans or credit card debt.

The car lease factor

Whether you’re leasing a car or have a traditional car loan, the total debt obligation will be on your record. However, traditional borrowers can expedite payments in order to pay off their car faster. When you’re leasing a car, you cannot expedite payments, which could put you at risk for not being approved for a mortgage.

The lender’s goal is to ensure that you are financially qualified to pay back your mortgage over the long-term. If all other factors were equal, a homebuyer paying $400 monthly for a traditional car loan will be considered less risky than a homebuyer who is leasing a car for the same amount. Why? At the end of the loan, the traditional borrower will have ownership of the asset (car), while the car lessee will have to obtain a new lease when theirs runs out.

Will my car lease really prevent me from getting a loan?

Every lender has different criteria when it comes to approving a loan. It’s unlikely that an otherwise highly qualified borrower would be denied a loan based on a car lease; for borrowers with less-than-perfect credit or a spotty employment record, a car lease could be the final factor that leads to a denied mortgage application.

What other factors put me at risk?

Every buyer should take control of their spending in the months leading up to applying for a loan. Here are common factors that could put you at risk for being denied by a lender:

  • Paying bills late: Payment history makes up 30 percent of your credit score
  • Getting multiple credit checks: If you run a credit check multiple times in a short period of time, your credit score could decrease slightly
  • Grand expenses: Avoid large purchases — including new cars, boats and vacations — in the months before you buy

Where do you stand?

There are countless factors that go into applying (and being approved) for a mortgage. Edina Realty Mortgage has dozens of local experts who help buyers like you get responsible financing. Reach out today to be put in touch with a lending specialist.

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