Applying for a Florida Home Loan and Car Loan: The Effect on your Credit
For some, merely applying for a Florida home loan isn’t enough. These individuals also want to take out a car loan simultaneously. Might as well plan ahead for multiple expenses, right? Could this have a negative effect on one’s credit score, however? It’s an important question.
Circumstances effect Florida home loan, car loan consequences
If you’re applying for your first Florida mortgage loan and buying your first car, lenders will be concerned about your ability to take on so much new debt. But if you have a history of managing debts responsibly - and have sufficient income to carry both loans - you should have fewer problems.
Florida home lenders will want to calculate what your debt-to-income ratio would be if you were to carry both. They’ll usually want to ensure that it’s less than 36 percent. If it’s not, and you’re still approved, you may be charged a higher interest rate on one or both of the loans, because the lender may perceive you as having a greater risk of defaulting.
Inside your credit score
About 10 percent of your credit score is based on new inquiries, while applying for several new credit accounts in a short time may reduce your score. It’s possible, therefore, that applying for both a car loan and a Florida home at the same time could have a negative effect on your credit score and be a yellow flag for lenders when they check your file.
One way to reduce any such potential impact is to apply for the Florida home loan first, because that’s the bigger cost, and after that closes, apply for the car loan. If you do end up being charged a slightly higher rate on the auto loan, it will be less important because it’s for a much smaller amount.
If you’re applying for Florida mortgage refinancing rather than a brand-new home loan, you could solve this problem by considering cash-out refinancing. With this option you may be able to get a better rate and better terms on your mortgage, while also tapping into your equity to get additional money for your car purchase. It’s a common way to deal with debt as you go through the loan process.
