The typical new-car payment hit an all-time high in the first quarter of 2026, new data shows—a jump that could cost hopeful househunters as much as $135,000 in buying power.
The average monthly payment on a new vehicle is now $770, up nearly 3% from a year earlier, according to Experian. The increase follows a sharp run-up in both vehicle prices and borrowing costs: New-car prices are almost 30% higher than they were in 2020, while auto-loan rates hit more than 7.5% in February 2026, compared with about 4.5% in early 2022.
For a median-income household, those added costs can mean the difference between shopping for a $530,000 home and a $394,000 one—a 26% reduction in homebuying power assuming a standard mortgage scenario and 10% downpayment.
Auto debt is already the second-largest category of household debt after mortgages. But now, those rising payments are competing more directly with housing costs at the moment buyers are trying to qualify for a loan.
“Vehicles are getting so expensive and pushing down that buying power,” says Michael Perna, a real estate agent in Michigan, adding that he’s seen car costs push buyers into neighborhoods they would not otherwise consider—out of the market entirely.
“You’re getting pushed to stamp lots that you don’t like in neighborhoods you don’t enjoy with a home that doesn’t have the amenities that you need,” he says.
As home prices and mortgage rates remain high, and other forms of household debt keep weighing on buyers’ budgets, that calculation is becoming harder to ignore.
How car payments impact mortgage approval
The measure that puts auto debt and housing debt in direct competition is the debt-to-income ratio, or DTI. Lenders use it to compare a borrower’s recurring monthly debt payments with their gross monthly income when deciding how much mortgage they can afford.
The exact threshold varies by lender and loan program, but 43% is a common benchmark for total monthly debt.
“That’s how much you can allot toward all of your revolving debt, which would include your mortgage, your car payment, credit card payment, and then any student loans,” Perna says. “All of that debt has to fit within that number.”
For someone earning the median personal income of $45,000 a year, gross monthly income comes to $3,750. At a 43% DTI threshold, that leaves about $1,613 a month for all recurring debt payments combined.
A household earning the median income of $84,000 a year, meanwhile, would have $3,010 for monthly debt payments at the same threshold.
It’s easy to see then how a large car payment can eat up a significant share of a person’s DTI. The typical $770 monthly new-car payment would account for almost half of a single person’s allowable DTI, leaving little room for a mortgage.
Perna caveats that mortgage approval also depends on other factors—like a borrower’s credit score and other housing costs like property taxes—but the basic tradeoff is the same. Every dollar committed to a car payment is a dollar a lender may no longer be able to count toward housing.
The $135,000 cost of a $770 car payment for homebuyers
But few buyers think in terms of DTI. More often, they’re thinking about how much home they can afford.
That’s where the effect of a car payment becomes easier to see. Assuming median incomes across buyer profiles, a 10% down payment, and a standard mortgage scenario with a 43% DTI limit, car payments can cut some househunters’ buying power nearly in half.
It’s an especially important consideration in today’s market. While prices have cooled in some areas, the national median listing price is still about $425,000.
And for the median income household—just one typical new-car payment could push that home out of reach. With that $770 payment, their estimated ceiling falls from roughly $530,000 to $394,000—a drop of about 26%.
That may be why the median income across all homebuyers was higher than the national median, reaching $109,000, according to data from the National Association of Realtors.
But even these households are not immune. One payment reduces their estimated ceiling by $135,000—enough to change the homes and neighborhoods they can realistically compete for in what’s still a competitive market.
“That is the difference between breaking into a B or an A-rated school district, or a B-minus or a C,” Perna says. “It’s the difference between getting a four-bedroom home or three-bedroom homes, it’s the difference between a 1,200-square-foot home or an 1,800-square-foot home.”
Why two-car households may feel the squeeze most
But it’s two car households who may be hit hardest—and there’s no shortage of them nationally. Over 90% of households have at least one car, and more than 58% of households own two or more cars, according to the most recently available data from the Department of Transportation.
For these households, the tradeoff only compounds. Two $770 monthly car payments add up to $1,540 in recurring debt each month—enough, under the same mortgage assumptions, to reduce a household’s estimated home-price ceiling by roughly $271,000.
That can be particularly consequential for households trying to move beyond a starter home. It’s a dynamic Perna says he’s seeing play out on the ground in Metro Detroit.
“The slowest point of the market where I’m at, isn’t the first-time home buyers or the third or fourth or fifth-time home buyers,” Perna says. “It’s the messy middle.”
Those buyers are often trying to move into a larger home as their families and expenses grow, while carrying higher housing, transportation, and child-related costs than they did when they bought their first home.
“Their household debt has gone way up,” Perna says.
Car insurance can make the homebuying budget even tighter
But the car loan or lease is only one small piece of having a car, and Perna says he sees these other hidden costs weighing on buyers, too.
Gas prices alone are up more than 40% in 2026, while car insurance premiums have increased 55% since 2020.
“Insurance is one of those hidden costs,” Perna says. “Where it’s hidden is lenders don’t take it into account with the debt-to-income ratio.”
A mortgage approval may account for the car payment itself, but not necessarily the insurance bill or the gas bill that comes with it. That can leave a household with a qualification on paper for a home they can hardly afford.
Perna says his own auto insurance costs more than $300 a month, a personal example that illustrates how quickly transportation costs can exceed the payment shown on a credit report.
What homebuyers can do before taking on a car payment
Buyers who expect to apply for a mortgage in the near future may want to check with a lender before replacing a car. A preapproval can show how much room remains in the monthly debt budget—and how a new loan could change the price range of homes they can pursue.
It also helps to count the full cost of driving—sometimes called the “commute tax”—rather than focusing only on the monthly payment. A lower car payment can preserve more room for a mortgage and leave a household with a greater cushion after closing.
Buyers should also be cautious about relying on overtime, bonuses, or other income that may not be dependable year after year. Perna says he encourages clients to leave more breathing room than the maximum a lender may approve.
For younger buyers especially, Perna is seeing a shift toward choosing the least expensive vehicle that still meets their needs. Some clients, he says, are approaching the decision with a simple calculation: “Give me the cheapest car note I can find, give me the least expensive car that services my needs.”
That choice can preserve more than a few dollars in a monthly budget, he adds.
In his words, “It means you change the cities you’re looking at. It means you change the school districts your kids are going to go to. It means you change the amenities of the houses you’re going to buy.”
