Tariffs Just Raised Car Prices — and They Could Derail Your Homebuying Plans

Here’s how the new 25% auto tariff could lower your borrowing power and what you can do about it.

If you're a Millennial or Gen Z thinking this is finally the year you'll buy a home — brace yourself. A new 25% tariff on imported cars and auto parts could throw a serious wrench in your plans, and not in the way you might expect.

Sure, you may not be shopping for a new car right now. But if you are — or if you recently financed one — that decision could now play a big role in whether you qualify for a mortgage. Why? Because the cost of car ownership is climbing, and that means your monthly payments could push your debt-to-income ratio (DTI) too high to get approved for the home you want.

Let’s break it down.

Car prices are going up — fast

The new tariff, which goes into effect April 3, 2025, will hike the cost of imported vehicles and parts by 25%. Analysts estimate that imported cars could become $5,000 to $15,000 more expensive — and even U.S.-made cars could jump $3,000 to $8,000 due to cost trickle-downs.

A more expensive car = a bigger car loan. A bigger loan = higher monthly payments. And higher payments = trouble when lenders calculate your DTI — which is crucial when you're applying for a mortgage.

Why your car payment could shrink your home loan

Mortgage lenders use your DTI to assess how much house you can afford. It’s the ratio of your monthly debts (including student loans, car payments, credit cards, etc.) to your gross income. Most lenders want that number under 43% — and ideally closer to 36%.

If your monthly car payment balloons by even $150 to $300 because of rising prices and interest rates, it could push you over the line. That means you may not qualify for the mortgage amount you need, you could face higher rates, or you might not qualify at all — even with solid credit.

And here's the kicker: even if you don't buy a new car, auto insurance premiums have jumped 36% since early 2020, with a 20% increase just in the last year alone. That’s more money flowing out of your wallet before you even get to the mortgage application.

What can you do to still afford a home?

It’s not all doom and gloom. There are steps you can take to protect your homebuying dreams:

1. Hold off on big car purchases: If you can drive your current ride a little longer, do it. Avoid taking on new debt before applying for a mortgage.

2. Go domestic: If a new car is unavoidable, American-made models will be less impacted by the tariff.

3. Clean up your credit: A better credit score can unlock lower mortgage rates, which helps offset a higher DTI.

4. Budget for insurance hikes: Shop around for car insurance, bundle policies, and consider usage-based plans to cut costs.

5. Talk to a loan officer early: A mortgage pro can help you assess your DTI and advise you on how to make the numbers work before you start home shopping.

The bottom line: Take control of what you can

Between high home prices, rising rates, and now costlier car ownership, the road to buying your first home feels tougher than ever. But the key is preparation.

Start by speaking with a mortgage lender early — even before you're ready to buy — to understand your debt-to-income ratio, build a savings plan, and get personalized advice.

You can also take advantage of free homebuyer education programs to boost your confidence and financial readiness. The earlier you start, the more power you'll have when it’s time to qualify.