New car, hard to get conventional loan for first time home?

Question

Hi all,

My girlfriend and I just got a new car- she makes the payments and we put it in my name due to my pretty good credit (hers is currently pretty bad).  My question is: My dad freaked out when we bought it because he doesn't think now I'll be able to buy a home the conventional way until this car loan is paid off.  What do you all think?  We're currently renting but do want our own house eventually, maybe a house hack or BRRRR I've been reading about?  I've never bought a new car (and obviously home) and right now my dad is causing me a great deal of anxiety, love your opinions.

Jon Holdman · Answer

Well, we don't actually need your payment and income, just the ratio. If the total of all your debt including this car payment is under 8% of your gross monthly income this won't have much effect on your ability to borrow for a primary residence. If its over 8%, yes, that will reduce your ability to qualify for a loan by the amount over 8%. Typically lenders want your total PITI to be under 28% of your gross income, and total debt to be under 36%. But this can depend on your credit score. Have a look at the Fannie Mae Eligibility Matrix for details. Page 4 shows DTIs and credit score requirements.

Doesn't matter that your girlfriend makes the payments. Your name is on the loan.

Doug Phillips · Answer

@Chris Tabanico I think this is the course of action I'd like to do;  I first heard about this method back in January and this seems like the best way to go given my situation.  Thanks Chris, do you mind if I PM you more about this?

Chris Tabanico · Answer

@Doug Phillips sure thing. Happy to help anyway I can.

Doug Phillips · Answer

@Matt P. That is true also- he lent me his opinion on an insurance policy regarding the car, and he turned out to be completely wrong on that.  Sometimes you've to block negative things out I suppose;  thanks again.

Doug Phillips · Answer

@Andrew Boettcher thank you, good to know!

Andrew B. · Answer

they would consider it because if your girlfriend stopped making payments, you would legally be on the hook. if you were on the edge of being accepted and being not accepted, you may be able to convince a smaller bank that its her car and shouldn't count. this is unlikely tho, and I wouldn't count on it.

Doug Phillips · Answer

@Andrew Boettcher that is great to know, thanks!  Although the car is under my name, it's mainly my girlfriend's car, and she is making the payments (her banking account is set up with the loan).  Would a bank still look at DTI- if it's her that is making the payment?

New car, hard to get conventional loan for first time home?

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