{"id":23537,"date":"2026-03-05T20:17:46","date_gmt":"2026-03-05T20:17:46","guid":{"rendered":"https:\/\/budgetadirect.com\/?p=23537"},"modified":"2026-03-05T20:17:47","modified_gmt":"2026-03-05T20:17:47","slug":"how-rising-car-prices-present-one-more-hurdle-for-homebuyers","status":"publish","type":"post","link":"https:\/\/budgetadirect.com\/?p=23537","title":{"rendered":"How Rising Car Prices Present One More Hurdle For Homebuyers"},"content":{"rendered":"
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Car prices keep soaring \u2014 the average price of a new vehicle topped $50,000 for the first time last year, and the share of Americans taking on $1,000 monthly car payments passed 1 in 5, also a record.<\/p>\n

If you\u2019re considering a new car loan while also hoping to buy a home, you might want to think again: A hefty car payment can hinder your ability to qualify for a mortgage.<\/p>\n

\u201cHigher car payments eat directly into the residual income available for a mortgage payment,\u201d says Anthony O. Kellum, CEO of Kellum Mortgage in Roseville, Michigan. <\/p>\n

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We see this often where a borrower qualifies for a lower loan amount than they otherwise could because of that significant monthly outgoing expense. It forces applicants to look at lower-priced homes or require larger down payments to compensate for the reduced capacity.<\/p>\n

\u2014 Anthony O. Kellum<\/cite>
\n CEO, Kellum Mortgage<\/span>\n <\/p><\/blockquote>\n

Ever-rising car payments are just part of the affordability squeeze that has gripped the U.S. housing market since the pandemic. Home prices have soared to record levels, and the typical age of first-time buyers has risen to 40, a record.<\/p>\n

\u201cYou never know which straw will break the camel\u2019s back,\u201d says Robert Brusca, chief economist at FAO Economics. \u201cBut it\u2019s all in the mix \u2014 high car payments, high house prices, higher mortgage rates, high student debt levels.\u201d<\/p>\n

In other words, it\u2019s not an easy environment in which to buy a home. Saddling yourself with a hefty car payment ahead of applying for a mortgage could make your process even more difficult.<\/p>\n

\u2018It feels overwhelming\u2019<\/h2>\n

The average price of a new car topped $50,000 for the first time in September 2025, according to Kelley Blue Book, driven by better quality, longer-lasting cars as well as the popularity of electric vehicles.<\/p>\n

According to Edmunds, the average new car payment for loans originated in the fourth quarter of 2025 was $772. And the share of new-car buyers committing to monthly payments of $1,000 or more reached a record high of 20.3%, up from 18.9% a year earlier.<\/p>\n

Taylor Walker recently bought a Jeep Wrangler Safari and became one of the growing share of Americans with a monthly car payment north of $1,000. While the new Jeep included rebates and other incentives, she was upside down on her previous vehicle, a reality that boosted the size of her loan.<\/p>\n

She now pays $1,197 a month for her car. \u201cIt feels kind of overwhelming,\u201d Walker says.\u00a0<\/p>\n

As prices have risen, car buyers have taken on longer and longer loans. The average term of a new loan is now 70 months, or nearly six years, according to Edmunds. A generation ago, three- and four-year car loans were the norm.\u00a0<\/p>\n

\u201cYou look at a consumer profile, and you see $900, $1,000, $1,200 auto payments,\u201d says Craig Riddell, executive vice president at LoanLogics, a company that provides services to mortgage lenders. \u201cIt\u2019s that combination of the length of the debt and the amount of the payment that has changed.\u201d<\/p>\n

The good news in Walker\u2019s case is that she and her husband bought their home in northern Virginia before taking the car loan, so the hefty car payment isn\u2019t affecting their ability to become homeowners. But a hefty car payment could lead folks to put off repairs and renovations.<\/p>\n

Still, in some cases, young adults remain renters in part because they think their auto debt will disqualify them from a mortgage. <\/p>\n

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They think, \u2018This automobile loan is just too onerous. I\u2019m not ready yet because I have this albatross.\u2019\u201d<\/p>\n

\u2014 Craig Riddell<\/cite>
\n Executive vice president, LoanLogics<\/span>\n <\/p><\/blockquote>\n

How a car payment affects your mortgage application<\/h2>\n

Underwriting guidelines vary by lender and loan program, but here\u2019s an example of how a large car payment can affect your ability to qualify for a mortgage.<\/p>\n

Say you make $8,000 a month and you\u2019re applying for a $350,000 mortgage at 6.25%. Your monthly principal and interest would be $2,155, or 27% of your income. All good \u2014 you\u2019re below the 28% housing debt ratio and the 36% total debt-to-income (DTI) limit many lenders impose on conventional loans.<\/p>\n

But add in car payment of $1,200 and a $250 student loan payment, and your DTI climbs to 45%. While conventional loans often allow borrowers with stellar credit to go up to 45% DTI, your unique profile \u2014 credit score, the value of a property compared to the size of the loan, etc. \u2014 might mean you\u2019re no longer eligible, or you may have to accept a smaller loan amount.<\/p>\n

You might still be eligible for a Federal Housing Administration (FHA) loan \u2014 they have higher DTI limits, but FHA mortgages also come with higher fees. But just because you could still qualify doesn\u2019t necessarily mean you should. Consider whether your budget can support that loan and don\u2019t just take the word of the mortgage lender when it comes to \u201cthis is how much home you can afford.\u201d<\/p>\n

Mortgage rates can vary from one lender to the next. Therefore, even though a high car payment can increase the level of difficulty when it comes to qualifying for a mortgage, it\u2019s important to compare mortgage lenders and get at least three home loan offers.<\/p>\n

An alternate approach: \u2018Debt is slavery\u2019<\/h2>\n

While more and more Americans are taking on hefty auto payments, Utah electrician Stephen Hiatt went in the opposite direction: He paid off his auto loan well before shopping for a home. Hiatt and his wife bought a condo near Salt Lake City in 2025.<\/p>\n

\u201cDebt is slavery,\u201d Hiatt says. \u201cBeing debt-free is freedom.\u201d<\/p>\n

Hiatt says he subscribes to the philosophy that mortgages are generally \u201cgood debt,\u201d but he did want to limit his monthly payment to $1,900.<\/p>\n

The lack of a car payment helped boost Hiatt\u2019s buying power, says his real estate agent, Ben Clark, owner of Home Buyer Representation Inc. in Salt Lake City and president of the National Association of Exclusive Buyer Agents.<\/p>\n

\u201cEvery $100 less in debt would increase purchasing power by about $17,000 at a 5.875% rate,\u201d Clark says. \u201cSo $1,000 less debt could mean the difference between a larger home, a home in a better area, a home in better condition or just being more comfortable financially.\u201d<\/p>\n

Thomas Nitzsche, vice president at credit counseling service Money Management International, endorses Hiatt\u2019s approach. Too many car buyers \u201ctake out loans at the top of their budget or finance the maximum approved by the lender for longer, more expensive terms, instead of the least they can possibly borrow to achieve reliable transportation,\u201d he says. \u201cIt can be a budget game-changer to minimize this expense, and prospective homeowners should consider reducing or eliminating auto payments to absorb the \u2018hidden\u2019 costs of a home and adjust to the new normal of homeownership.\u201d<\/p>\n

What you can do to manage auto debt alongside a mortgage application<\/h2>\n

If you hope to apply for a mortgage in the near future, some things to keep in mind while car shopping:\u00a0<\/p>\n