Deposit or no Loans

[rabitbreath]

Hi All
I am currently deciding what to put my money into. I am looking at buying a house at the start of 2008. After doing the maths i have worked out I can either pay off all but $2000 of the car or save about $10000. From a borrowing point of view am i better off having little debt or would it be better to have to deposit and a debt?
I know in the long term I am better off paying off the car (much higher interest), however, on the other hand i could roll the remaining debt onthe car into the home loan and have a lower interest rate on the remaining balance.
What do you think?
Thanks

[Broken Arrow]

Why do you need to buy a house at the start of 2008?

Personally, I would pay the car off. Higher interest. Depreciating item. Plus, knocking it off your monthly bills will increase your chances of qualifying for the mortgage. Yes, lenders look at whether you are capable of paying the monthly mortgage or not, and paying off the car will make a difference.

However, if the car loan was in simple interest and/or $10k amounts to enough of a downpayment to avoid PMI, then I would seriously consider using it as downpayment instead.... If not, I would definitely pay off the car.

[rabitbreath]

Dont need to buy a house, make that want. Currently a student and cant afford it till then.

Sorry what does PMI stand for?

[disneysteve]

Originally Posted by rabitbreath

i could roll the remaining debt onthe car into the home loan and have a lower interest rate on the remaining balance.
What do you think?

DON'T DO THIS! All this accomplishes is turning a 4 year car loan into a 30 year car loan. Yes, the rate might be lower but the total interest you will pay over the life of the loan is far more.

I would just make the regular payments on the car and save as much as possible for your downpayment shooting for a 20% downpayment if possible to avoid PMI (personal mortgage insurance) which is generally required if you put down less than 20%.

But I also agree with Broken Arrow. Depending on your credit, if paying off the car will help you qualify for the mortgage, then pay off the car.

Sorry but no simple answer. It all depends on your situation.

[Great to be Debt Free]

Hi rabit; don't know if you are married or not,but one thing to keep in mind if you aren't -- don't necessarily buy the house to raise a future family in. Your future wife/husband may hate the house!

I'm not saying don't buy a house, just be sure you're not trying to buy your future dream house if your mate isn't helping you pick it out. It's likely their dream house may look a little different than yours! :0)

[Broken Arrow]

Originally Posted by rabitbreath

Dont need to buy a house, make that want. Currently a student and cant afford it till then.

Then don't do it! Just wait and save up some more or pay down more debts. You'll be much better off in the long run.

Sorry what does PMI stand for?

It's short for Private Mortgage Insurance. Until you have enough equity* paid off, lenders insist that you pay PMI in the off-chance that you are not able to meet your financial obligations. See how much they trust us home buyers? I think PMI is living proof that people don't tackle house buying properly. Alas, that included me.

When I had a house, my PMI was $75 per month, or $900 each year. Mind you, that was on top of the interest, escrow, and a property tax fund that I had to pay for before I was able to dent the principal. I don't know how many years it would have taken to achieve 20% equity, but if it was, say, 5 years, I would have paid $4500 in PMI alone! And once you pay PMI, that money is gone! You get exactly nothing out of it.

I'd like to own a house again some day. However, I won't make the same mistakes again.

* The value of your house versus the amount owed. Typically, you have to reach 20% equity before you can stop paying PMI.

[autoxer]

Originally Posted by Broken Arrow

Personally, I would pay the car off. Higher interest. Depreciating item. Plus, knocking it off your monthly bills will increase your chances of qualifying for the mortgage. Yes, lenders look at whether you are capable of paying the monthly mortgage or not, and paying off the car will make a difference.

That's not always true. If your total debt service is below 8% of your gross income, then knocking it down furthur won't increase your chances of qualifying. There are some qualifying ratios that vary by lender, but are usually that the PITI (principal, interest, taxes, insurance) can be up to 28% of your gross income, while total debt service PITI + car loan, student loan, credit cards, can be up to 36% of your gross imcome. Here is a good website for mortgage info & an article that explains it better: http://www.mtgprofessor.com/A%20-%20..._more_down.htm

Having more money available for a downpayment saves money on PMI & the interest rate, but it is very tiered. So going from nothing to 3% down will reduce mortgage costs, the other major tiers are 5%, 10%, 15% and 20%. And don't forget about closing costs, they may end up being another 5% of the purchase price.

I definately wouldn't recommend rolling the car debt into your mortgage. Why are you paying a high interest on the car loan? Can you refinance it?

I also want a house, but don't need one. But that desire is motivating me to prepare for it.

[Ima saver]

I would pay off the car first and then start saving for the house! Do you have an emergency fund? You need that before you get a house!

[PRICEPLUS]

Out of debt means out of danger. My .02 cents!

[LuxLiving]

Pay off that car!

[boefixepa]

Don't forget the other costs that come along with the house. I had NO idea how much it costs to maintain a house and all the 'things' you suddenly find yourself needing. A hose for outside, plants, lawn mower, weed eater, tools, snow shovel, shelves in the garage for all this 'stuff' etc...

AND as a side note...after five years in the house I STILL don't have enough furniture for all of the rooms. Much of the furniture I do have ... really should be replaced, but oh well. Oh and half my walls are still just white, the original color and many walls in room people never see are still bear because I have no decorations to put on them and I'm certainly not going to waste money on that!

Be ready for a few hundred here and a few hundred there for repairs that need to be done because if you don't they will just cost you more and if you finish that back yard...well that's 10K and, no my property vaule did not go up that much because the back yard now has concrete, a fense, sprinkler system and grass!

And yes it's nice to see your house go up in value...but that just means your property taxes go up to!

[Ima saver]

I realize that it costs money to own a home, but to rent is throwing your money down a hole! I know to some it does make sense to rent, but I bought a house early and have never regretted it. Every time i sold my house, I made money and built a bigger home.

[boefixepa]

Oh, I'm not saying don't buy a house, I'm just saying go in with your eyes wide open about the costs!

[TinyFish]

"Oh and half my walls are still just white, the original color and many walls in room people never see are still bear because I have no decorations to put on them and I'm certainly not going to waste money on that!"

*Dies of envy of people who can afford houses so large there are rooms that are not in use! *

Wow!

-E!

I don't know how many years it would have taken to achieve 20% equity, but if it was, say, 5 years, I would have paid $4500 in PMI alone!