Car Loan for a House? Discover Real Options Fast

Are you dreaming of owning a home, but worried that your existing car loan could stand in your way? With interest rates fluctuating and lenders scrutinising every detail, it can seem like a daunting task. However, understanding how a car loan impacts your ability to secure a mortgage can put you on the path to homeownership.

Understanding the Impact of a Car Loan on Home Buying

At its core, buying a house while having a car loan is about balancing your debts and income. Australian lenders assess your ability to service a home loan based on your existing financial commitments, including any car loans. They look at your debt-to-income (DTI) ratio, which measures your total monthly debt payments against your gross monthly income. A high DTI ratio could signal risk to lenders, potentially limiting your borrowing capacity.

Current Market Rates and Lending Criteria

In 2026, the Australian property market continues to experience dynamic changes. Interest rates for home loans range from 6.49% to 12%, depending on the lender and loan type. Car loans are typically in the range of 7% to 15%. Understanding these rates can help you gauge the impact on your monthly repayments and overall borrowing capacity.

Lenders consider several factors when evaluating your mortgage application:

• Credit Score: A higher score (typically above 650) increases your chances of approval.
• Income Stability: Consistent, verifiable income demonstrates your ability to repay the loan.
• Existing Debts: Your car loan, among other debts, affects the DTI ratio.
• Deposit Size: A larger deposit can offset the risk of existing debts.

Steps to Buy a House with a Car Loan

Despite having a car loan, buying a house is achievable with the right approach. Here's a step-by-step guide to help you navigate the process:

1. Evaluate Your Financial Situation: Calculate your DTI ratio by adding up all monthly debt payments (including the car loan) and dividing by your gross monthly income.
2. Review Your Credit Report: Request a free credit report and check for errors or areas to improve.
3. Save for a Larger Deposit: Aim to save at least 20% of the home's value, which can reduce lender's mortgage insurance (LMI).
4. Consult with a Mortgage Broker: At Esteb and Co, we work with 83+ lenders to find options tailored to your situation.
5. Get Pre-Approval: Secure pre-approval to understand how much you can borrow and demonstrate your seriousness to sellers.
6. Seek Debt Reduction Strategies: Consider paying down your car loan or consolidating debts to improve your DTI ratio.

Expert Tips and Considerations

Here are some expert tips to help you manage your car loan while aiming to purchase a home:

• Prioritise High-Interest Debt: Pay off debts with the highest interest rates first to reduce overall financial strain.
• Consider Loan Consolidation: If you have multiple debts, consolidating them into a single loan with a lower interest rate can simplify your finances.
• Stay Within Budget: Resist the urge to overextend yourself financially. Choose a home that fits comfortably within your budget.
• Improve Your Credit Score: Timely payments and reducing credit card balances can boost your credit score over time.
• Work with Professionals: Engage with financial advisors and mortgage brokers to get personalised advice and support.

Frequently Asked Questions

Here are some common questions about buying a house with an existing car loan:

• Can my car loan affect my mortgage application? Yes, your car loan contributes to your overall debt, impacting your DTI ratio and borrowing capacity.
• Should I pay off my car loan before applying for a mortgage? It's beneficial if possible, but not essential. Focus on maintaining a healthy DTI ratio and saving for a deposit.
• Will lenders consider my car loan in the mortgage assessment? Absolutely. Lenders assess all debts to determine your financial stability.
• Can I consolidate my car loan with my home loan? Some lenders offer this option, but it depends on your financial situation and lender policies.
• Is it difficult to get a home loan with existing debt? It can be challenging, but not impossible. Working with mortgage brokers like Esteb and Co can provide access to a wide range of lenders and solutions.
• What if my car loan has a high interest rate? Consider refinancing your car loan to a lower rate before applying for a mortgage to improve your financial standing.

Owning a home while managing a car loan is entirely possible with careful financial planning and strategic actions. By understanding the impact of your car loan on your mortgage application and taking steps to optimise your financial situation, you can achieve your dream of homeownership.