How does purchasing a car affect my ability to get a small multi-family loan?

Question

Hi, my partners and I are looking to buy a small to mid-sized multi-family property, but my one partner is also in the process of purchasing a car for $25K. To give you a background, he has no mortgage/rent payments, and with this car loan, his total monthly loan payments will be ~$600 versus an income (with commission) of ~$150K+. Our question is, how will this car loan affect our ability to apply for a mortgage? What about mortgages for multiple properties if we decide to buy more than one? Will there be a significant impact or should he be okay to purchase? Thanks!

Sasha Mohammed · Answer

there's not enough info in your post to determine if the car will derail your purchase or not. i would reach out to whoever pre-approved you for the purchase to begin with, and ask them to include a hypothetical debt for the car payment and see where your DTI shakes out.

if its strictly investment property, and you nor your partner intend to live in the property at all, there are loan programs out there (DSCR) that do not look at DTI at all -- qualifying is strictly based on the cash-flow of the property vs it's carrying costs as opposed to DTI. If you go this route instead of traditional A-paper conventional, the car likely won't even come up as a topic of conversation.

Erik Estrada · Answer

Depends on the type of loan,

If this is a DSCR loan, there won't be an impact as long as your lender does not do a second credit check. If they do, it might decrease the score. It also depends on who is the guarantor of the loan? Is it just one partner on the loan?

Dennis Muno · Answer

Well for loans, a very important part of it, is the debt-to-income ratio. How sure are you he is telling you the truth? Does he have any other monthly payments? You can ask him nicely. The more the DTI, the more riskier and expensive your loan could be. If both your credit and finances will be used to qualify for the loan and you both will be responsible for the monthly payment, that may tamp down the risk and overall DTI that will be used to either approve you guys or not.

Is it possible you could ask him to hold off until the property is finished? Even if you both will be on the loan application, this could raise your combined DTI a bit

Ray Hage · Answer

If possible, I would advise on waiting on the new vehicle till after the property purchase. If your current car is dead, then well I understand. It is just an extra monthly payment that increases the debt to income. The less debts the better! However, is it guaranteed to adversely affect getting a loan for a new property? No but it could. If possible, get the property first and get the new vehicle soon after.

Darnell Lockett · Answer

Hi @Kyle Vogeler. As others have stated, DSCR loans are Non QM loans that don't take personal debt into consideration. If you're using conventional loans then the car debt could have a negative impact on your DTI, depending on how much monthly income you bring in. In many cases, DSCR loans are better for investors as the loans don't verify personal income or debt. We look at income from the subject property.

Doug Smith · Answer

It depends on the type of loan you're doing. More conventional style financing will include that in the income calculation. Here's a quick story: I was still in banking as a commercial lender and I was doing a loan to build a surgery center for two surgeons. One was business-minded and frugal. The other was flashy and flamboyant. During the processing of the loan, the flashy doc leased a $750K Ferrari, which blew their DSCR and I could no longer do the deal. If you're doing a conventional style loan, buying a car can impact it, but it might not. I would still wait to do the transaction until you're done with the commercial financing. I did mention DSCR above. The new, en vogue DSCR product is NOT a traditional commercial loan product. It only takes into account PITI+HOA in the denominator of the DSCR calculation. A bank or a true commercial lender will do a Global Cash Flow where ALL debts go into the denominator including management and maintenance fees. Some will even add in your personal expenses...like car loans..into the denominator. If you recall the recent controversy over the Treasury Department trying to force pricing differences for Fannie/Freddie loans based on DTI, they reason lenders were firing back at that was that different underwriters...even within the same lender...can interpret the DTI (or DSCR) calculation differently. OK...I've gone off the rails and gotten into the weeks. Bottom line...it's best to wait to buy anything until you close on your property. Good luck to you.

Eliott Elias · Answer

It will affect their DTI.

Mirtis Sison · Answer

If your partner is using an auto loan to buy the car, their credit score could decrease but the debt to income ratio doesn't seem to be all that bad. I doubt it will affect your ability to get a PM loan on a multifamily. As long as they have cash reserves and bank statements(typically 1-2 years)/other documentation to prove they can pay off the loan, you should still be approved!

How does purchasing a car affect my ability to get a small multi-family loan?

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