How a Car Payment Could Cost You $100,000 in Home Buying Power

When you’re house hunting in today’s market, every dollar counts — and sometimes, it’s not your income holding you back from qualifying, it’s your monthly liabilities. One of the biggest culprits? Your car payment.

You wouldn’t believe how often I see someone with solid income, good credit, and savings — but they’re stuck because of that $700 a month car loan. The truth is, a $700 monthly payment can reduce your home purchasing power by roughly $100,000, depending on the interest rate and loan program.

Let’s unpack what this really means and how certain loan programs might allow you to work around it — or not.

🚗 The Math Behind Monthly Payments and Purchasing Power

In today’s rate environment (as of April 2025, the average 30-year fixed rate sits around 6.625%), $700 a month in mortgage payment roughly equals $100,000 in purchasing power. That means if you didn’t have that car loan on your credit report, you could potentially afford a home that’s $100,000 more expensive — and still have the same monthly mortgage payment.

Now, let’s say you’re carrying a car loan with a remaining balance of $15,000, and you’ve got $700/month going out the door on it. If you’re trying to buy a house and your debt-to-income ratio (DTI) is a little too tight, that car loan could be what’s blocking your approval — especially if you’re working with a lender who takes a rigid view on how installment debt is treated.

🏡 What Is “Paying Off Debt to Qualify”?

Some mortgage lenders might ask or even require you to pay off the car loan at or before closing to help you qualify for the house. It’s a strategy we call “paying off debt to qualify.” And it works — but it’s not always the only route.

If you’ve got the funds, yes, paying off a $15,000 car loan could increase your purchasing power and lower your DTI. But it’s not always the most efficient use of cash, especially if you’re tight on reserves or need that money for closing costs or your down payment.

Here’s where loan type really matters.

✅ When You Don’t Need to Pay It Off: Installment Debt Guidelines by Loan Type

Let’s break it down by loan program. If you’re carrying an installment loan (like a car loan) with 10 or fewer payments remaining, here’s how the major loan types treat it:

Conventional Loans (Fannie Mae/Freddie Mac)

Installment loans can be excluded from your DTI if:

• You have 10 or fewer payments left

• The payment is not substantial (typically not more than 5% of your gross monthly income)

If the payment is considered “significant,” underwriters may still count it — even if there are only a few months left.

FHA Loans

The most conservative of the bunch. Installment debt may be excluded if:

• There are 10 or fewer payments remaining, and

• The total remaining payments are less than or equal to 5% of your gross monthly income

If the remaining balance is large or the payments push you over that 5%, FHA will count the debt against you.

VA Loans

The most flexible program. Installment debt with 10 or fewer payments left can usually be excluded, regardless of payment size — as long as the underwriter believes it doesn’t impact your ability to repay the mortgage. No strict 5% rule here.

🧠 What This Means for You

This is where working with the right lender makes all the difference. Not every lender interprets guidelines the same way. Some will count the debt regardless. Others — like myself — take a strategic look at your profile, understand the flexibility within the loan guidelines, and structure your loan to get you into the home you want without unnecessary roadblocks.

If you’re carrying a near-end car loan and trying to qualify, don’t assume you’ll have to pay it off — there’s a real possibility you won’t need to. Depending on your income, loan type, and what’s remaining on the note, we may be able to exclude that payment entirely, giving you the purchasing power you need.

💬 Final Thoughts

So, if you’re looking at homes and feel a little boxed in by your payment range, take a second look at your current liabilities — especially your car loan. The difference between qualifying or not might come down to less than a year of payments you’re already on the hook for.

And if you’re not sure what your DTI looks like or whether you can omit that payment — reach out. I’ll walk you through your options and help you figure out a plan that works for your goals.

Let’s keep it simple, smart, and strategic.