What comes first: the house or the vehicle? It’s a question people have probably been asking since the Model T hit the road. The answer depends on your specific financial situation: since houses and cars cost a significant chunk of change, you’ll need to weigh your options carefully. We asked the experts what factors to consider to make the best and most financially wise choice for you.
What should I buy first?
Should you buy a car or a house first? To help you decide, here are four factors to look closely at:
The state of the housing and auto markets
Interest rates are going up right now, and that applies to both mortgages and auto loans. In addition, inventories of homes and vehicles are low. In other words, it’s not too affordable a time to buy either. If interest rates are falling or stocks are rising in either market, it could be a sign of a strike in that particular category.
For now, however, it may be worth looking at the long term. For example, cars generally depreciate over the years, while the value of real estate tends to increase. “Housing markets move in cycles, but homes will almost always appreciate to some degree over time,” says Katie Wishneff, realtor at William Means Real Estate in Charleston, South Carolina.
Your shopping schedule
Do you need to make a purchase soon? You don’t know where you will be in the next few years? Buying a car can be done faster than buying a house, and unlike a house, your car can go with you wherever you live.
“Buying a home is complicated,” says Michael Gifford, CEO of Splitero, which helps homeowners access their home equity. “It should start with loan qualification. After the pre-qualification process, buyers can start looking for their home. Potential Buyers Should Consider Long-Term Scenarios [like] a change in employment or income status and the resale and rental potential of the property.
In other words, when you’re buying a house, you really have to think about the big picture. Buying a car does not require the same level of anticipation.
The issue of whether or not you should buy a house is irrelevant if you cannot afford the high cost of home ownership. Ask yourself if you have enough money set aside for a down payment, plus closing costs and monthly mortgage payments, as well as maintenance costs. Discount rate new home calculator can also help you crunch the numbers to determine if homeownership fits your current financial situation. If not, a car is probably the answer, for now.
However, creditworthiness comes down to more than a three-digit number. This means looking at your financial situation and determining if you can reasonably handle the amount of debt you plan to take on. There is a common guideline that can help you determine your limits: “People often refer to the rule 28/36says Courtney Klosterman, home information expert at Hippo Insurance. “With this rule, your housing expenses must not exceed 28% of your annual income and your total debt must not exceed 36% of your annual income.” Total debt includes car payments as well as housing costs.
Buy a car first
If you need both accommodation and transportation, a car is an easier and more affordable starting point, especially if you buy a second hand. For more help deciding whether you should buy a new or used vehicle, see our guide on the subject.
“If you need a car, especially for work, I would suggest starting with this one,” says Wishneff. “You can’t create wealth without a job!”
Will buying a car affect your ability to buy a house? Yes, at least temporarily. You probably can’t turn around and buy a house right after a major purchase like a car. Opening of the new credit account which is your car loan usually results in a short-term drop in your credit score. It will also affect your debt to income ratio or DTI, which real estate lenders take into account when you apply for financing. However, over the years, as you pay off your car on time, that debt can help you build a stronger credit score, allowing you to get a better mortgage interest rate in the moment. came. And when interest rates come back down, refinance your car loan can be simpler and cheaper than refinancing a mortgage.
Buy a house first
If you can comfortably afford the down payment and mortgage that come with buying a home, and you plan to live in the same place for at least the next five years, consider buying a house first. As long as you can reliably get to work, by public transport or any other means, locking up your home has major benefits.
“The primary financial benefit of home ownership is that it’s considered a low-risk investment that historically appreciates over time,” says Curtis Wood, CEO of Florida mortgage app Bee. Additional benefits, he says, can include property tax deductions, capital gains exclusions and other preferential tax treatments.
“There is also a major psychological benefit,” adds Wood. “Homeownership is the foundation of almost all wealth creation. Your home is not just your nest egg, but the emotional foundation to grow and expand your wealth outside of the home into other assets.
Klosterman agrees: “Buying a home, especially as a first-time buyer, is exciting,” she says. “You can move into a space that belongs to you to decorate it, use it and enjoy it as you wish. However, with this privilege comes many responsibilities. Think: financial burden, maintenance and unscheduled repairs. Being a homeowner is hard work, but it’s usually worth it.
Obtain pre-approved for a mortgage is a good first step in helping you figure out how much house you can comfortably afford.
What should I do?
If it’s financially viable for you and you still have reliable transportation to get to work, most experts recommend buying a house first.
“Real estate generally appreciates over time and should take priority over a vehicle, if possible,” says Gifford. “Vehicles generally depreciate the minute they are purchased and driven from the lot. If a consumer decides between buying a car or a home first, a home will be a better investment for them in the long run.”
“Definitely buy a house first,” agrees Wood. “Property tends to appreciate better than cars, and most vehicles lose value over a long period of time until they become collectibles. Compared to the appreciation in value of house over the same period, it makes much more sense to buy a house or property than a car.”
“Owning a home can be one of the most formative and defining experiences of a person’s adult life,” says Klosterman. “Some people view home ownership as a rite of passage, and for many, a home is the most important asset in their financial portfolio.”
Start the home buying process by team up with a real estate agent you can believe. “Talk to a reputable real estate agent and lender to understand which options will work best for you,” Wishneff says. “It’s not a decision you want to take lightly. A competent and reliable lender and real estate agent will help you guide you.”
If you can’t get to work without a car and decide to take this route first, shop around for best car loan rates. The more you can save on a car now, the more you will need to invest in your first home in the future.