Should I refinance my car before buying a home?

Short answer: probably not.

Why? The refinance of the car will impact your credit score as if you have purchased a new car. Credit scoring favors established older debt over new debt. Once you have that new loan, even if the payment is lower and interest rate is lower, the established old debt is paid off and eventually loses the positive impact to your credit scores.

Your new refinanced loan will also impact your credit as it will be considered 100% financed of the new loan amount. You don’t receive any boost to your credit for if your car is valued at $20,000 and new your loan amount is $10,000. Credit scores improve once your debt is at 50% of the debt amount and an additional improvement to credit scoring once the debt reaches 30% of the new loan amount.

If you’re refinancing for purposes of qualifying, do check with your licensed mortgage originator first. It’s possible that if you have 10 payments or less remaining, the car payment may not need to be factored into your debt-to-income ratios.

If you can qualify with the current car payment and are considering buying a home, you may be better off delaying the refinance until after your new home purchase has closed.

Do check with your mortgage professional before taking my advice as your financial scenario may call for different actions.

If you are interested in refinancing your home located anywhere in Washington state, I’m happy to help you!


  1. My wife and I want to trade our cars in for two cheaper cars to make room for our mortgage, but we haven’t closed yet, have about 25 days left, I was just curious if that would affect our approval? Thanks

    • Hi Matt,
      Check with your Mortgage Professional as I don’t have all of your financials.

      The safest thing to do is to wait until after closing before making any changes to your application. You will need to disclose the new debt to the lender (even if the payment is lower). And obtaining a new debt combined with paying off an old established debt will drop your credit scores and so, yes, it could absolutely impact your approval. Lenders re-verify credit just prior to funding/closing.

      Good luck!

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