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Car vs. House Downpayment

post #1 of 5
Thread Starter 

We are a family of three currently renting an apartment.

We drive a gas guzzling clunker that will need to be replaced in the next 2 months.

We have some savings.

 

1) We need another vehicle and want something that is 1) fuel efficient and 2) affordable. We would never buy a brand new car because of the depreciation. We are considering buying a used car that is newer and is a hybrid or gets great gas mileage. Ideally, we want this car to last 20 years! It is thus a significant investment for us. We will only finance it if we can get 0% apr financing. (Car suggestions appreciated)

 

2) We are sick of renting! We are throwing money away everything month and getting no equity and nothing of value in return. We would like to move toward owning our own home ASAP (probably not feasible until at least another year). We would start with a town home or low-priced starter home. We could use our savings towards establishing a down payment. If we spend them on a car, we will be that much further from a down payment.

 

What should we do?

I had the idea that if we lease a car and own our home (instead of "leasing" our home and owning our car, like we do now) at least the car payment is less than the rent payment. But then we would still own no car. And again, we will not be in a position to purchase a home for at least another 12 months.

 

Please - advice, discussion, help from all you brilliant mamas! tea6.gif

post #2 of 5
Car -- I am by no means a car expert (ironically, if you knew my line of work!! lol.gif) but 2 cars come to mind to start with... You can get a used Accord for around $5-10K and they get 35+MPG. A used Prius will be around $20K but will get 50+MPG. So big difference if you double the money... depending on how old you want to go & how much you want to spend, you can research comparable/competing models for either of those to broaden your search.

House -- you might look into whether there are first-time homebuyer programs in your state. You might not need a down payment at all. We bought our house with no down payment & got a seller assist with closing costs, so we were able to keep all of our money in savings in case we needed to do home repairs or other 'emergency' type spending. You definitely don't want to spend all your savings when you're buying a home (plus factor in whether you'll need new furniture, appliances, etc.) Some will say it's not a wise financial move to buy a house with nothing down, but I think if you find a good program, it could be good, especially if rents are high. Our mortgage is not all that much higher than rent would be for a basic 2-bed apartment in our area... yes, we'll pay more over time on our mortgage, but we're saving by not renting, so it kind of evens out a bit & we get all the benefits of a home with a yard...
post #3 of 5

How much can you save/month? If possible, try to stretch your current car for as long as possible, and pile all of your extra money toward the home downpayment.

 

I've wanted a fuel efficient car for ages, but when I do the math, I see that the extra money (that it costs to buy a hybrid or super fuel efficient vehicle) I would need and look at how long I'd have to drive it to achieve the savings on gas, it never works out.  For example, I currently spend $300/month on gas.  I would have to spend $13K to get a car that is 2x more efficient (so that I could spend only $150/month on gas).  With those numbers, I'd need to drive THAT car for more than 7 years to BREAK EVEN.

 

Since you have a short term goal of saving up a down payment, I think you should concentrate on that and not buy an expensive car right now (even at 0% interest). 

 

Just my 2 cents.

post #4 of 5

Do you plan to stay in your community for several more years? If so, buying is a good option. If you're going to move in the next year or two, I'd continue to rent - you won't recover your closing costs in a short time.

 

When DH and I bought our first home, we decided to find a "forever" home instead of a starter home. Mostly that was because we'd moved so much as college students and hated it! But we bought a 3-bd house in a terrific neighborhood, and we still live there, 22 years later. Now that our sons are teenagers, it feels a little small, but not nearly so much that we'd consider spending the time and money for a different house.

 

I recommend Edmunds.com as a great resource for used car information. How many miles will you dirve the second car, on average? My DH commutes 25 miles each way, 3 days a week, during the school year. We talked about getting a different car with better gas mileage (his van gets about 24 on the highway), but the improvement wouldn't offset the cost of the vehicle. OTOH, a good friend who commutes 150 miles a day bought a Ford Focus, in addition to his small pickup, and the increase in fuel economy will pay for the vehicle in a relatively short time.

 

My advice: since you're replacing the vehicle anyway, look for something with good mileage. But don't pay an awful lot more for it, unless you plan to put on a lot of miles - and extra $2-3000 could go a long way toward gas.

 

Finally, before buying ANY used vehicle (from a dealer or an individual), get it checked out by a trusted mechanic. It will cost you ~$100, but is well worth it if you discover major mechanical problems before you buy.

 

I realize I didn't really answer your question! It's a tough call - there are so many variables. Depending on the location, maybe you'll drive less. Depending on the condition of the house, it could be a lot more expensive than renting.

post #5 of 5
Quote:
Originally Posted by nd_deadhead View Post

When DH and I bought our first home, we decided to find a "forever" home instead of a starter home.


This is a good point too. Our house would definitely be considered a 'starter home' to most, but we bought it with the goal of it being our 'forever' home. Of course there are a lot of things we would look at differently if we ever bought again, but we'll be OK in this house, we can build an addition if necessary...
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