Is it really bad to buy a car before buying a home?

[SilverJK]

As the title states. Here's my situation - Single, 31, no debt. Credit score is low 800's. My 2012 Jeep Wrangler is my only vehicle and has been paid off for a couple years. I have about $30k in the bank. My take home pay after deductions is roughly $2k/month. I would like to buy a used second vehicle around $9000 to use as a commuter. I was thinking of putting $3k down and finance the rest. The Jeep Wrangler is fun toy, but isn't the best commuter as mpg is horrible. I am also pre-approved for a mortgage and have been looking at a some houses. I'm not in a huge hurry to buy a home, but would love to be ready if the right one comes along. It would be my first home. My price range is $100k-$130k. How bad would financing a small $6k auto loan hurt my chances of getting a mortgage loan? I figured payments would be roughly $150/month. I would pay it off asap btw. Just wanted to hear some of your opinions. Thanks for any advice.

[TexasHusker]

A friend of mine has a 60 mile round trip commute.

He bought a quite nice but high miles Honda Accord for around $5K. He's put about 60K on it with no problems whatsoever.

Buy a nice beater for a commuter car - Honda or Toyota. You don't want to sink big dollars - borrowed or otherwise - into a car that you're going to rawhide.

And if you're going to buy a house any time soon, I wouldn't finance anything.

[kork13]

I'm going against all of the conventional wisdom here, so feel free to scoff (that offer is open to everyone)... But I really don't think it matters all that much, especially if you've got a pristine credit score/history. You're sitting pretty at 800+ FICO. If you get a car loan right now, your score might drop 20-30 points, max. That still wouldn't drop you anywhere near the typical threshold (740-ish) for getting the best rates. I will say that the best option is to get your rate locked in before you take on the car loan, but if you're still house-hunting and you need the car now, buy the car and the house will work itself out.

This is a sample size of 2, so take it for what it's worth... But I've bought a home twice, and each time, I needed to buy a new car. Once because I was returning from overseas, had no car whatsoever, and also needed a place to live. So I bought my new car in July, got my rate locked in right about the same time, found a house in August, and closed on the house in September. I got what was, at the time, a rock-bottom rate (2.75% in 2012). More recently, we just moved to Alaska. We sold my wife's car to her sister (who didn't have any wheels of her own), and bought my wife a new (used) car in August, found a house up here later that month & locked in our rate (somehow an even-better 2.375% in 2016), and closed on the house in September.

In both cases, the banks (different each time) weren't concerned at all about my recent car purchases. I even asked, specifically, if that would be a problem. They wanted information about the loan (balance, payment, etc.), but as long as your debt-to-income ratio is good, they won't even bat an eye. Especially for such a small loan. $6k? please... that payment is lower than many people's cable bills.

IMO, what you really need to concern yourself with when preparing to buy a house is this:
- Large downpayment (20% or more)
- High FICO score (740+)
- Low debt-to-income ratio (payments on total debt, including the mortgage, will be less than 30% of monthly income)
- Minimal (preferably zero) credit card debt
- Good emergency fund (at least 3 months' expenses, desirably 6 months, in excess of your downpayment)
- Don't try to buy too much house (mortgage no larger than twice your annual income)
- Stable, long-term employment with a reliable (and sufficient) income stream
- Good, boring banking records to prove to the lender that you're financially stable. The downpayment should be sitting in your own personal accounts, not getting wired in the week before from an uncle or grandparent.

Just my 2 cents... take it or leave it.

[disneysteve]

Jeep Wrangler is my only vehicle

I would like to buy a used second vehicle around $9000 to use as a commuter.

The Jeep Wrangler is fun toy

Here's my 2 cents:

Sell the Jeep and use the money to buy a car that actually meets your needs. You're single. You don't need to own 2 cars, especially if you need to take out a loan to buy the 2nd one.

Also, how much do you earn? You gave your take home but not your gross. I'm wondering if the 100-130K price range for a house is reasonable for you.

[Jluke]

move as close to work as you can. Then you won't have a long commute, you won't need 2 cars, and you can keep the paid off jeep.

I have commuted 90 miles round trip for 17 years - move as close to work as you can.

[Fishindude77]

Also, how much do you earn? You gave your take home but not your gross. I'm wondering if the 100-130K price range for a house is reasonable for you.

Kind of my thoughts also.
Congrats on having a nice savings, but $2000 per month take home isn't much to be making house and car payments with. For housing, I'd consider renting or buying something much cheaper, maybe $60K so your payments don't get out of hand. And look at 15 year fixed rate loans, not 30 year stuff or variable rate stuff.

[MonkeyMama]

A small auto loan would only raise your credit score. (Unless you don't make the payments on time, or something like that). Generally, adding a small loan of a different type would only improve your credit score. It may just take cash flow away from what you can put towards a house.

Of course, it doesn't matter if your 800+ score drops to the high 700s. So all around, I wouldn't worry about it.

{I live very close to my job, but I Still wouldn't commute in a gas guzzler like a jeep. So I didn't presume much about commute. I think it's fine to have a practical car and a fun car. I would answer differently if you were talking about purchasing a $30,000 vehicle and/or a $300k house}.

[commoncentsmike]

Here's my 2 cents:

Sell the Jeep and use the money to buy a car that actually meets your needs. You're single. You don't need to own 2 cars, especially if you need to take out a loan to buy the 2nd one.

Also, how much do you earn? You gave your take home but not your gross. I'm wondering if the 100-130K price range for a house is reasonable for you.

I agree with this. Sell the Jeep and get something that meets both needs. DO NOT buy a car simply because it has better MPG. You have MORE insurance, MORE state inspection/Registration fees, MORE maintenance.

Sure, it gets better gas mileage. But it may take you 20+ years to offset the $9K + additional expenses.

[msomnipotent]

There are a lot of variables, one of which is what type of mortgage loan you are getting. My sister and her husband had so-so credit, no money for a down payment, and two car loans. They were able to get a VA loan for a house without a problem. I'm looking for a house right now. My credit score is in the mid 800's and my husband's is almost perfect. I was told by our broker that having our car loan in addition to our mortgage was limiting our options, and we already have a 20% cash down payment. I was also told that opening any new credit after we have been locked in will cause them to have to redo the application, which will result in additional fees, wasted time, and probably a higher interest rate.

If I were you, I would sell the Jeep and get a car you can use with that cash, or wait until after you close on a house. You might find out that adding a car payment on top of a mortgage is a little too much, too soon. You are not just buying a house, you are buying things that need to be fixed and possibly more furniture, too.

[disneysteve]

Sure, it gets better gas mileage. But it may take you 20+ years to offset the $9K + additional expenses.

Exactly. When the Prius got popular, people were buying them to "save money" on gas. The problem is they were buying $23,000 cars to replace their paid for cars so they could save a couple hundred dollars per year. The math didn't make any sense.

[SilverJK]

Thanks for the replies. I gross about $3800/month, but after all deductions (taxes, retirement, and healthcare) I take home about $2000/month. I have been thinking it's probably best to sell the Jeep and get a cheaper more practical car.

[disneysteve]

I gross about $3800/month

In that case, a house in the 100-130K range is reasonable, the lower the better of course.

[snafu]

Where did you get your good sense of money management? I wish we could infuse that knowledge in everyone your age and similar circumstances. I'm so alarmed at some people's 'no planning' spending patterns.

[~bs]

I agree with this. Sell the Jeep and get something that meets both needs. DO NOT buy a car simply because it has better MPG. You have MORE insurance, MORE state inspection/Registration fees, MORE maintenance.

Sure, it gets better gas mileage. But it may take you 20+ years to offset the $9K + additional expenses.

it really would matter on how much he values that jeep versus the extra money he gets from selling it. It would be like skipping that yearly family vacation because it costs too much and you could save thousands. It really comes down to how much you value _____ . If he's going as far as getting a beater vehicle, despite the extra costs, my guess is that he really wants to keep that jeep. Maybe he takes it offroading, camping, etc? He didn't say.

Getting back to his original question, personally I sold my sports car a few months before buying a home. I wanted the peace of mind that having the extra cash brought. After a while, when I was more comfortable with my finances, I bought a different sports car, which I still own today. So he possibly could look into this. Buy the beater now, so it's avaible when he's ready to buy a home. At that point, he can decide on how much he wants to try to keep the jeep around.

[greenskeeper]

How far is your commute?

$9k (plus insurance, plus repairs) buys a lot of gas

I'd keep the wrangler, or trade for something better. But stick with one vehicle since you are single.