For many Americans, the biggest obstacle to buying their first home may already be sitting in their own driveway.
The Washington Post cited the latest research provided by the Urban Institute ( Urban Institute ) which states that over 74 million American adults are burdened with car loan debts, with the average monthly repayment amount reaching a new high of $716.
This is equivalent to an annual expenditure of $8,592, not including insurance, fuel, maintenance, and other costs. Although the rise in mortgage rates has increased the cost of buying a house, car loans are quietly reducing the borrowing capacity of potential buyers.
For families that have to deal with car loans, student loans, and housing costs at the same time, this issue is particularly prominent.
How to Use a $716 Car Loan to Reduce Mortgage Budget Expenses
Mortgage lenders typically review the borrower's debt-to-income ratio ( DTI ), which is the proportion of monthly debt expenses to pre-tax monthly income.
Assume that a family has a pre-tax monthly income of $6,000.
With a total debt-to-income ratio cap of 43%, the family has approximately $2,580 available for mortgage payments and other eligible debts. If the monthly car loan is $716, then the amount available for the mortgage will be reduced to $1,864 before taking into account student loans, credit card debt, or other obligations.
The resulting difference may substantially affect the amount of mortgage a family is able to obtain.
Taking a hypothetical interest rate of 7% and a 30-year loan as an example, a monthly payment of $716 in principal and interest can cover a mortgage principal of about $108,000. The actual borrowing capacity also depends on property taxes, insurance, other debts, and the requirements of the lending institution.
This also explains why, even though there are more sellers than buyers in the market, housing prices do not necessarily become more affordable.
Why do Americans borrow more money to buy cars?
In the past five years, the cost of vehicle financing has risen significantly.
According to the analysis by Yiborui ( Experian ) in September 2026, the average monthly payment for newly financed vehicles in the second quarter rose to $765, while for used cars it was $542.
The average size of new car loans has reached $43,610, reflecting the high prices of vehicles and the larger amounts that consumers are financing to purchase cars.
At the same time, more and more Americans are extending the terms of their loans in order to maintain affordable monthly payments.
A longer loan term can reduce the monthly payment, but it will extend the time during which the borrower is burdened with debt and may increase the total interest cost.
For those preparing to buy a house, the timing is particularly unfavorable. Taking on a new six-year car loan not long before applying for a mortgage may limit one's borrowing capacity for most of the home purchase process.
This pressure has further exacerbated the issue of housing affordability, and high housing prices and high financing costs have already deterred many buyers.
Car loans are evolving into a long-term wealth issue.
The financial consequences are not limited to one's eligibility for a mortgage.
Data from the Urban Institute also shows that over 36 million Americans are burdened with student loan debt, paying an average of $316 per month in repayments.
For families that bear both types of debt simultaneously, the total monthly expenses can exceed $1,000, thereby reducing the funds available for emergency savings or a down payment.
Some borrowers can improve their situation by refinancing, reducing outstanding debt, or purchasing cheaper vehicles. Yiborui found that consumers who refinanced their auto loans in the second quarter saved an average of $83 per month, however, extending the loan term may increase the total interest.
The difficulty lies in the fact that homebuyers still have to face high housing loan costs, as well as a market environment where existing homeowners are reluctant to give up mortgage rates that are lower.
Even the financial system behind mortgage loans relies on borrowers proving their ability to make regular payments continuously.
