So, you’ve just bought the house of your dreams, but now you need a new car. You are looking at making back-to-back purchases of two of the most expensive items you will ever buy in your life. That can lead to some questions about what buying a house does to your credit score and how soon can I buy a car after closing on a house. Let’s find out what you can do and when you can do it.
How Soon Can I Buy a Car After Closing on a House?
First things first, let’s just take a quick moment and talk about why you shouldn’t buy a car before you close on your new home.
When you apply for a mortgage, your lender will go through your financials with a fine-toothed comb.
Any change can upset the apple cart and you may find yourself on the wrong side of a denial.
This is especially true if your credit reports show that your score is borderline.
When you buy a car the dealership or bank will pull your credit.
This is called a hard pull and it always decreases your score by a few points.
Those points could mean the difference between being approved for a mortgage loan and not being approved.
It can also mean that you will receive higher interest rates or mortgage rates when you are approved.
Ask any loan officer and they will tell you not to apply for any type of credit before the closing process on your home mortgage is complete.
So, what about after you’ve filled out the loan application and have been approved for the loan and you’ve had the closing?
Lender Telling Us Not to Buy a Car Even After Closing
Don’t be surprised if your lender tells you not to buy a car even after the closing.
There is a really good reason for this: funding.
You would think that once you have had the closing and received the keys to your new home, the deal is done and you can go on your merry way.
Most of the time this is true, but not always.
Even after you have signed all the paperwork and your loan officer has done all their work, the loan still needs to be funded.
What is Funding
Funding is when the money you have borrowed goes from your lender to the escrow company or title company and then to the seller and the lien has been recorded with the local courthouse.
Once that happens the loan has been fully funded.
When that happens depends on the type of funding your state has.
Wet funding means all the documents required for your mortgage and closing must be submitted and approved before the closing date when you sign all the paperwork.
The amount of money that will be needed for the transaction to be finalized is confirmed by the title or escrow company.
Your bank will then have the money transferred before the closing date, so the money can be paid to the seller at closing.
This is how most states operate but not all of them.
Some use what is called dry funding.
With dry funding, you sign all of the documents on the closing day, but all of the additional paperwork doesn’t need to be completed on that date.
The funds from the loan have not been distributed and all the loan documents are not complete.
It can take two or three business days after the closing before everything is complete and the funds have been disbursed.
The following states use dry funding states:
- New Mexico
So, back to the question…
Some lenders, especially in dry funding states, will pull a credit report before they fund the loan.
This can take up to three days after the closing and possibly more.
That means if you run out and buy a car right after closing, this could show up on your credit report and lower your credit score.
Your lender might also decide you now have too much debt and want to change the terms, such as the interest rate on your loan.
They could even cancel it.
This is especially true if you have marginal credit.
The best thing you can do at your closing is to ask your mortgage lenders when the loan will be funded.
Then you will know when you can go out and buy your new car.
It makes a lot of sense to wait a day or two after your loan has been funded before you run out and apply for more credit of any kind and especially a car loan.
Other Considerations When it Comes to Buying a Car After Buying a House
Unless you’re in a situation where you need a car immediately, it might be better for you to wait if you can.
There are other considerations when it comes to buying a car.
1. Your Credit Score
When you go to buy a car one of the first things the dealership is going to do is a credit check.
If you have just purchased a new home, your credit score will have taken a hit.
This is true any time someone pulls what is called a hard pull credit check.
Your score will go down a few points.
This means when you try to buy a car, you will end up paying a higher interest rate.
If on the other hand, you wait a few months or even six months, your credit score can improve.
You’d be surprised how much difference a few points can make.
2. Your Debt to Income Ratio
When you buy a new house you are increasing your debt, a lot, until your mortgage is paid off.
This increases how much debt you have compared to how much income you have.
If this is too high then you will often be turned down for a car loan.
If you have other debt such as a personal loan or credit card debt do what you can to pay them off before you apply for an auto loan.
Paying off any additional debt will increase your chances of being approved.
If your debt to income ratio is over 50 percent and your credit is less than stellar you will have a difficult time being approved for a car loan.
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3. Your Down Payment
Let’s face it, buying a house is expensive and you usually have to come up with a lot of cash.
It may leave you with little in your savings and bank account after paying for closing costs.
If you don’t have enough money for a decent down payment on your new car, your loan approval could be on shaky ground.
Most experts say you should put down 10 to 20 percent on your car.
That means having a down payment of $3,000 to $6,000 dollars on a $30,000 dollar car.
Having this type of down payment will help make your payments lower and up the likelihood of you being approved.
A larger down payment will help even more if your credit history isn’t great.
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To Sum it All Up:
You can buy a car after closing on a new home, but you need to find out the funding date and then apply for a car after that date and not before. Just be sure you can afford all of these new monthly payments. You don’t want to get yourself into a tight spot and lose the car or even worse your new home.