Car vs. Home

[brightyellowhaha]

Hello. I am new the boards and seeking come financial advice regarding a difficult decision I will be facing in the near future.

I am single mom of a 2 yr old and a 4 yr old. I currently rent a home in a fantastic town with fantastic schools and reasonably priced homes. I would like to settle and stay here, and I would have the financial means next summer to buy a home. However I have been recently listening to Dave Ramsey and I am wondering if it would be best to use my home downpayment to pay-off my car loan ($12k) instead? My interest rate on my car is 8.5% and it's a 48 month term which will be paid off in 2014.

The financial saavy part of me thinks paying off the car would be the ideal move and wait to save up some more cash to buy a home the following year... however my landlord has mentioned possibly selling my rental next August 2012 when my lease is up which means I would have to move. Finding another rental in the area would be very difficult, and I would prefer not to leave town when my son would be starting in public school.

So what would you do if you were in my shoes? Use the money for a downpayment on a home? Or pay-off the car note? I am seriously torn and don't know what to do???




Thanks!

[bjl584]

Do you have the option of refinancing the car loan to a lower rate?

Why would finding another rental in the area be difficult?

[brightyellowhaha]

I probably could refinance once my credit improves a little. I'm not sure what that whole process entails, but it may be an option...
Unfortunately, rentals just are not available in my town because the homes are so affordable to buy. Now that I think about it I would have to come up with first, last and security to move into another rental and if I was to find one in town I that would be easily $4-5k.

I should add that I do plan on driving my car into the ground. It's a 2005 Toyota Corolla with $65k miles (I bought used) so it should run for at least another 100k miles. So if I pay off the car with the downpayment I wouldn't be looking to get into another loan.

[bjl584]

Can you post the rest of your budget? Be as detailed as possible listing monthly income, expenses, debts, and savings/assets.

[photo]

Your 2005 Corolla's value should be a few thousand less than $12,000. The interest rate of 8.5% seems very high, so it would be a good idea to look into a lower interest loan. Since you said your credit isn't that great, a house loan interest rate would also probably be higher as well. It sounds like buying a house would be easier in some regards, but you'll also be digging yourself deeper into debt, which is rarely beneficial to anyone.

[brightyellowhaha]

Sure here are my monthly numbers:

Monthly income (after taxes, insurance ect): $4924
Monthly Child Support income (not always dependable: $360
Monthly Total income: $5284

Monthly Expenses
Rent: $1500
Daycare: $1475 (this will be cut in half in the next year and then almost $0 in two years when both my kids are in public school)
Car payment: $340
Transportation (gas + tolls): $250
Car Insurance: $80
Gas (home): $50-200 depending on the season
Electric: $50-100
Cable/Internet: $52
Cellphone: $106
School Loan: $132
Groceries: $300
Savings: $300-$500

Debts:
Car loan: $12,000
School loan: $10,000

Savings:
$1700 emergency fund
$12,000 401k



Thanks for your help!

[brightyellowhaha]

The loan for the Corolla is high because I had to roll some of previous car loan into this car loan which may have been stupid. Although I traded in my caravan which got awful gas mileage and I commute 300 miles a week to and from work. I thought trading it in for something much cheaper with better gas mileage, same terms (48 months) made more sense in the long run.

Do you know if I would be able refinance my car loan being upside-down?

I recently checked my credit and I'm in the low 700's, high 690's.

[photo]

Originally Posted by brightyellowhaha

Do you know if I would be able refinance my car loan being upside-down?

I don't know but it would certainly be worth a try. I'll cross my fingers for you.

[mcfroggin]

If you plan to live in the area for a long while, I'd consider buying now. This may be the best housing market for buyers in a long time. You may be able to get an excellent price. Could you purchase a home in the area for about the same monthly cost as your rent? I would look into that.

[brightyellowhaha]

Thank you everyone for the great advice!

I do plan on staying in the area for a while, if not forever. I have lived in two major cities and moved around a lot in my early 20's so I've gotten that out of my system and since my divorce have moved home, I grew up in the area and want the same for my children.

I think that I may take a portion of my home down payment and apply it to my auto loan so that the amount I owe is at least close to equal to the value of the car. I've been looking into refinancing as a previous poster had mentioned but it looks like most banks wouldn't finance my car because it is more 5 years old or if they do the rate would be the same as my current rate so I don't think that this is an option.

I am looking to buy a home for around $200k - $225k so it would be maybe a little bit more than my current rent. Even with throwing some down payment money at the car I should still have about 5% to put down on a home.

[alphadore]

I consider to pay off the car and carry on with renting for a couple of more years until the dust in the economy settles. You may get greater deals in the upcoming years.