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

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.

Get more #BuyerInsights by following us on Facebook, Twitter, Instagram and YouTube.

_{Edina Realty Mortgage is an affiliate of Edina Realty. See Affiliated Business Arrangement Disclosure Statement.}

_{Prosperity Home Mortgage, LLC may operate as Prosperity Home Mortgage, LLC dba Edina Realty Mortgage in Minnesota and Wisconsin. ©2024 Prosperity Home Mortgage, LLC dba Edina Realty Mortgage. (877) 275-1762. 3060 Williams Drive, Suite 600, Fairfax, VA 22031. All first mortgage products are provided by Prosperity Home Mortgage, LLC. Not all mortgage products may be available in all areas. Not all borrowers will qualify. NMLS ID #75164 (For licensing information go to: NMLS Consumer Access at http://www.nmlsconsumeraccess.org/) Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act. Licensed by the Delaware State Bank Commissioner. Georgia Residential Mortgage Licensee. Massachusetts Mortgage Lender and Mortgage Broker MC75164. Licensed by the NJ Department of Banking and Insurance. Licensed Mortgage Banker-NYS Department of Financial Services. Rhode Island Licensed Lender. Rhode Island Licensed Loan Broker. Rhode Island Licensed Third-Party Loan Servicer. Also licensed in AK, AL, AR, AZ, CO, CT, DC, FL, ID, IL, IN, KS, KY, LA, MD, ME, MI, MN, MO, MS, MT, NC, ND, NE, NH, NM, NV, OH, OK, OR, PA, SC, SD, TN, TX, UT, VA, VT, WA, WI, WV and WY.}