Financing a vehicle a few months before I expect to apply for a mortgage?
If your debt will all be less than 25% gross (yes, I see you said take home) you are in great shape. I'd get the car and not worry.  The well written mortgage is 20% down, with a housing payment (which of course includes prop tax and insurance, as noted by mhoran, below) under 28% and total debt under 36%. You are well within the limits, not even close. That's great. Buy a modest vehicle with a manageable payment.  Keep the payment low enough ($200-300/month) to keep your DTI (Debt-To-Income) ratio clear.  The short-term ding to your credit for new credit should disappear in 3-6 months (your time horizon).  Having a mix of credit is part of the credit scoring model, so having an installment loan is not a bad thing.  Relax. Usually, it's not a good idea as it will not only raise your debt to income ratios,  but also impact your credit scores. However, if you have extensive credit history, having owned a home or two for a while (read: 10-20 years), taken out multiple auto loans in the past and paid them satisfactory, your credit score may not take a big hit. Possibly ust 5-10 points or it can be 30-40 points. It really depends on the depth of your credit profile.
"From the HLSS 1st quarter 10Q: ""Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. The SPEs issue debt supported by collections on the transferred advances. We made these transfers under the terms of our advance facility agreements. These transfers do not qualify for sale accounting because we retain control over the transferred assets. As a result, we account for these transfers as financings and classify the transferred advances on our Interim Condensed Consolidated Balance Sheet as Match funded advances and the related liabilities as Match funded liabilities. We use collections on the Match funded advances pledged to the SPEs to repay principal and to pay interest and the expenses of the entity. Holders of the debt issued by this entity can look only to the assets of the entity itself for satisfaction of the debt and have no recourse against HLSS.""   I'm not an expert in the accounting of these things but I'll take a stab from the view of a bond investor.  Let's assume the mortgage(s) in question have been pooled together and sold into the bond market in the form of a mortgage-backed security (MBS).    When a homeowner falls behind on their payment, scheduled principal and interest (their monthly mortgage payment amount, or ""P&amp;I"") is advanced as if the borrower is still current to the person who holds the MBS.  This is typically done from the time they first fall behind until either they 1) catch up on their payments or, 2) are foreclosed upon and the home is sold to repay the mortgage balance.  In either instance the advanced monthly payments are recaptured by the servicer before the holder of the MBS is paid.  In this sense, the servicer develops a sort of prepaid asset over time by advancing money they are almost certain to recover at a future date (usually via foreclosure and liquidation).    Due to a high number of borrowers falling behind on their payments since the housing crisis and the resulting time it takes to foreclose on a property, the servicers (OCN, HLSS, etc.) have built a large balance of advances on the asset side of their balance sheet.  To free up this cash prior to liquidation of the home, they have sold short term bonds against this asset (via an SPE), thereby creating the liability you reference.  So in essence they have, say, a home they expect to be liquidated in twelve months that they have advanced P&amp;I on.  The short term bonds sold via the SPE offset this asset at an equivalent term, thereby making the asset and liability ""match funded""." "I started storing and summing all my receipts, bills, etc. It has the advantage of letting me separate expenses by category, but it's messy and it takes a long time.  It sounds from this like you are making your summaries far too detailed. Don't. Instead, start by painting with broad strokes. For example, if you spent $65.17 at the grocery store, don't bother splitting that amount into categories like toiletries, hygiene products, food, and snacks: just categorize it as ""grocery spending"" and move on to the next line on your account statement. Similarly, unless your finances are heavily reliant on cash, don't worry about categorizing each cash expense; rather, just categorize the withdrawal of cash as miscellaneous and don't spend time trying to figure out exactly where the money went after that. Because honestly, you probably spent it on something other than savings. Because really, when you are just starting out getting a handle on your spending, you don't need all the nitty-gritty details. What you need, rather, is an idea of where your money is going. Figure out half a dozen or so categories which make sense for you to categorize your spending into (you probably have some idea of where your money is going). These could be loans, cost of living (mortgage/rent, utilities, housing, home insurance, ...), groceries, transportation (car payments, fuel, vehicle taxes, ...), savings, and so on -- whatever fits your situation. Add a miscellaneous category for anything that doesn't neatly fit into one of the categories you thought of. Go back something like 3-4 months among your account statements, do a quick categorization for each line on your account statements into one of these categories, and then sum them up per category and per month. Calculate the monthly average for each category. That's your starting point: the budget you've been living by (intentionally or not). After that, you can decide how you want to allocate the money, and perhaps dig a bit more deeply into some specific category. Turns out you are spending a lot of money on transportation which you didn't expect? Look more closely at those line items and see if there's something you can cut. Are you spending more money at the grocery store than you thought? Then look more closely at that. And so on. Once you know where you are and where you want to be (such as for example bumping the savings category by $200 per month), you can adjust your budget to take you closer to your goals. Chances are you won't realistically be able to do an about-face turn on the spot, but you can try to reduce some discretionary category by, say, 10% each month, and transfer that into savings instead. That way, in 6-7 months, you have cut that category in half." Utilization is near real-time. What that means is that what is reported is what is taken in terms of debt-to-income (DTI) ratios. When a mortgage broker pulls your credit, they will pull the latest balances with the minimum payments. This is what is taken to determine DTI along with your gross monthly income. If you do not pay your account in full before the statement date, then you more than likely will have to wait an additional statement cycle before it reports to the credit bureaus. Therefore, your utilization is dynamic and the history of your utilization month-to-month is not recorded forever. Only the current balance. What is maintained and reported is your payment history. So you want to never be late if you want to be approved anytime soon for a mortgage. A lower DTI will not help your interest rate. As long as you stay away from the maximum DTI for the mortgage vehicle you are attempting to be approved for (VA, FHA, Conventional, etc), then your DTI should not be a concern. If you are borderline at the time of underwriting, you can take the opportunity and pay off the balances. The mortgage company can then do what is called a credit supplement which entails contacting those lenders where you have proven you have a zero balance and manually input the zero balance cards, that have not yet reported to the bureaus, in your final application to the mortgage company for underwriting approval. "The can and the should have been discussed in other answers and comments,  and so I will discuss the how.  As others have noted, it is important to make sure that the additional money goes to reducing principal and not towards  prepayment of interest.  Unfortunately, very few bank tellers understand how mortgages work and very few bank officers - even loan officers - understand how mortgages work too. Thus a statement that you want the extra money to go towards principal will likely be met with a blank look. Furthermore, what they do with the money and how it is entered on the bank books that afternoon when the transactions are recorded may have no resemblance to what was discussed and agreed to earlier in the day.  Based on my personal experiences and  many arguments with banks about how they handled my prepayments and how interest was computed, I would  recommend the following (which is easier now that automated payments are possible for the standard monthly payment and additional payments are possible via electronic funds transfer). Make sure that automated payments are made on the day that the payment is due, not at the end of the ten-day grace period that banks love to grant you for making the monthly payment. Yes, there is no penalty for late payment as long as you pay before the end of the grace period, but interest continues to be charged and so more of each graciously delayed payment goes to interest  and less towards principal. Make the additional payment on the same day as the standard monthly mortgage payment is made. This ensures that at worst just one day's interest is owing when the additional payment is made. Also, payment in the middle of the monthly cycle is an almost sure way of getting ripped off on the interest because the bank's computers will post the payment in the manner most favorable to them, and usually contrary to the terms of your mortgage.  I have  complained to banks about mishandled mid-month payments and won every time, and on many occasions the bank officer would grudgingly say ""We have always done it this way and nobody  ever complained till you did today."" I doubt very much if the bank's programs got changed as a result of my complaints. If you are not sure how mortgages work and how interest  is calculated or don't have the time or inclination to go hassle with the bank each time but do prefer not to get ripped off, make the payment as described: on the dot and at the same time as the regularly scheduled monthly payment. The amortization schedule that the bank should have given you shows how much the principal amount is after the monthly  payment is made on each due date.  Assuming that you have  not been taking advantage of the grace periods and so the schedule is correct, make an additional payment not of a round sum but an exact amount (down to the last penny) that will jump you from principal owing after today's regular payment to principal owing after the regular payment N months from today. Here of course you choose N based on how much extra money you were planning on paying towards your mortgage.  By making the extra payment, you will effectively have cut the length of  the mortgage by n months and the same amortization schedule will apply over the shorter period.  Since very little of the principal is repaid in the early life of the mortgage, an additional principal-only payment can reduce the length of the mortgage by years. Paying a specific amount that matches the amortization schedule also helps if you ever need to hassle with the bank. It is their print-out you are arguing from, and not trying to explain to a clueless bank officer how the bank did not compute interest  correctly after you paid $1500.00 extra at beginning of last month." No. As long as you live in the house for 3 years, it's yours to keep. Financing has nothing to do with that. In addition to the other answers, also consider this: Federal bond interest rates are nowhere near the rates you mentioned for short term bonds. They are less than 1% unless you're talking about terms of 5-10 years, and the rates you mentioned are for 10 to 30-years terms. Dealer financed car loans are usually 2-5 years (the shorter the term - the lower the rate). In addition, as said by others, you pay more than just the interest if you take a car loan from the dealer directly. But your question is also valid for banks. Two adages come to mind. Never finance a depreciating asset. If you can't pay cash for a car, you can't afford it. If you decide you can finance at a low rate and invest at a higher one, you're leveraging your capital.  The risk here is that your investment drops in value, or your cash flow stops and you are unable to continue payments and have to sell the car, or surrender it. There are fewer risks if you buy the car outright.  There is one cost that is not considered though.  Opportunity cost.   Since you've declared transportation necessary, I'd say that opportunity cost is worth the lower risk, assuming you have enough cash left after buying a car to fund your emergency fund. Which brings me to my final point.  Be sure to buy a quality used car, not a new one.  Your emergency fund should be able to replace the car completely, in the case of a total loss where you are at fault and the loss is not covered by insurance. TLDR: My opinion is that it would be better to pay for a quality, efficient, basic transportation car up front than to take on a debt. As observed, there is no answer that will fit all, but below are some considerations: Your monthly requirement is 5000, so you have 3000 left to pay the monthly instalments (EMI). However, if you do pay 3000, you will have no money left for any other activities (holidays etc.) till your EMI is finished Set off a sum, let us say 500-1000, per month (you shall have to decide), for other expenses The rest of the money, in this case 2000-2500, you can pay as monthly EMI If you indicate that your monthly EMI to the bank, they will be able to tell you how much of loan you are eligible for and for how long the EMI would last. This is your benchmark If this loan amount is 750,000 or more, you do not need to put in your own money. So the decision then becomes how fast you want to pay off your loan and as accordingly you shall utilize your 500,000 However, if the EMI will not cover a loan of 750,000 (more likely case), you have options between the following: a. Max out on your loan that 2000-2500 EMI/month (in terms of years as well as amount) can get you and put the rest from 500,000. b. Min your loan in terms of amount and time and put your entire 500,000 c. The middle ground is to balance between the loan and your own money, which is the best approach, there is no figure here that works for all, you have to take the decision based on your circumstances. However, in general, the shorter the loan term (in years) better it is as in aggregate you pay less money to the bank. If you are 1-2 months away from buying the house, one exercise you could do is to keep the EMI money in a separate bank account and see how you fare with the residual cash, this would give you a good reality check. Hope this helps, thanks