New Car vs. House

Hello! My husband and I find ourselves in an odd situation and I'm hoping YNABers can help with advice.

We just finished saving for a down payment on a house and are ready to start looking. In the current market, I expect this will take 6 months or so to find something that we like/can get without having 100% down. 

We have two cars, one of which is going to die soon. It's been dying slowly the past month, and will most likely need to be replaced in those same 6 months. We do have money for a deposit and will have a car loan for the rest. The car we will replace is not critical - we carpool to work and would be able to survive with one car for quite awhile (although it makes my husband nervous, as the car we will be using is actually older than the car we are replacing).

Should we replace the car and have the loan on our history (we are both currently debt free with excellent credit scores) for when we purchase the house, or should we purchase the house first and then get the car/loan?

TL;DR - Should we purchase a new car or a house first?

Thank you to all in advance!

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  • Since the car is not vital to your life, I would keep the old one until it dies. Don't put any extra into it if something expensive breaks down. If it does, get rid of it. You can rent a car if you need one for short term reasons and that will be way cheaper than buying plus won't affect your credit rating. 

    Like 1
    • MXMOM Thanks - that's what I'm thinking too. The only reason I hesitate is to get some value out of it via trade-in. Even without using it for trade-in, our loan wouldn't be terrible. 

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      • MXMOM
      • MXMOM
      • 2 wk ago
      • Reported - view

      Orchid Device if it’s as much of a clunker as it sounds they will probably only give you a basic flat trade in anyway just to get your business. We just went through something similar. 

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    • MXMOM I certainly didn't think it was a clunker, but it's turning out that way! 😂 Who knew 2012 VW Tiguan's have terrible engines?!

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      • MXMOM
      • MXMOM
      • 2 wk ago
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      Orchid Device I know right? Which is why we decided to lease for now to get the full warranty protection but still maintain cash flow. It does hit your credit rating so may not be an option for you. If it wasn’t for my son also needing a car, we probably would have been ok going to a single car as right now I am working from home and when I was going to the office, hubby and I commuted together. 

      Cars are one of those expenses that seem like a necessity but upon further analysis, may be a periodic expense which is where the rental car idea comes in. I am having a similar conversation with my mother about this as she doesn’t really go anywhere except drugstore, grocery store, and doctors. So does she really NEED to own a car that sits unused for 300 days a year? 

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      • Seabass
      • Seabass
      • 2 wk ago
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      Orchid Device Oh my goodness, I have a friend that had to have her Tiguan engine rebuilt (very expensive).  It turns out that you need high grade, tier one premium gas, not just premium gas to avoid engine problems.  I agree, if you can stick with just one of the cars and make it work, that is the best option. You can always purchase if the remaining car breaks down.  Just think of the money you will save with only one care in the meantime....insurance, gas and scheduled service.

      Like 1
    • Seabass *whispers* I only use cheap gas. Gulp!

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      • Budget Conquistador
      • Ready for the next big adventure
      • Khaki_Screwdiver.8
      • 2 wk ago
      • Reported - view

      Orchid Device My son was having problems with his fuel gauge until he started buying name brand premium gas.  I live in California... It's $5/gal at the nearby Shell station for regular unleaded.

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    • Budget Conquistador I remember driving in California - ugh! I was a shopper/buyer for the Ahmanson, which meant I was driving for 8 hours a day. I only lasted a few months before I noped! right out of there :)

      Like 1
  • Even though houses are expensive now, I've read they are expected to keep going up. A new car will only depreciate.  Committing to a house when you can barely afford it is difficult.  I had to get a second job for a while when I bought my first house.  After a few years though the payments became relatively low as the cost of everything else went up.   Looking back on it, I miss the time I could have spent with my family, but it set me up very well financially for the long term.

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      • MXMOM
      • MXMOM
      • 2 wk ago
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      Budget Conquistador Orchid Device houses are also an interesting discussion. It seems this is a mainly North American thing - the goal to own a house. In many countries, the majority of people rent. Yes, renting is “throwing your money away” and I could just as easily make that case. But again, it comes down to examining the root of a reason to buy something. I would argue that the “everyone buys a house” is a baby boomer anomaly that has become an expectation of what is normal. And the pursuit of owning a home at all costs is creating a buying frenzy.

      We own a house. We are Gen Xers so right behind the baby boomers.  When we bought our house, it cost 4x our gross annual income and that was because we bought out in the “country” which is now just normal commuter community. That house now would cost my kids 7 -8 times annual income because house prices have grown out of proportion with earnings. A young person today is making about $60K for a starting professional position in the Greater Toronto Area. I made $40K for the same level over 25 years ago. OUr first house cost $200K. A comparable house now costs $900K.  So the math is impossible.

      My family is from Germany where statistics show about 50% of people own vs rent. And surprisingly in Canada and US home ownership is 65 to 70%. Of course that is not broken down by city which I suspect has a lower percentage in large cities like Toronto and New York City that skews the numbers but the (false) message that homeownership is some required rite of passage is causing young people so much stress. They need 20% down to avoid mortgage insurance. Well that is between $60,000 to $90,000 which is the gross income of one person. And while they are saving that, prices are going through the roof. I anticipate that as the baby boomers age and either downsize or die, there will be a large inventory of houses on the market that will drive down and normalize pricing. I am not an economist so I am very possibly wrong. But based on the numbers, it makes sense. 

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      • Budget Conquistador
      • Ready for the next big adventure
      • Khaki_Screwdiver.8
      • 2 wk ago
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      MXMOM I see a house a a way of controlling my living cost and a way to diversify my retirement planning a little.  Renting is much more convenient, but when renting your monthly rent goes up over time, while only your tax and insurance may go up a little on the house .   I'd have delay retirement a lot longer if I had to plan for increasing rent over my lifetime.   It sounds like your house was a great investment, mine was too. 

      Like 1
    • MXMOM Unfortunately what's happening in my neighborhood is that it's mostly baby boomers and elderly people who live in the original 1950's houses (and us, although ours has a family room addition built in the 70's).  As these people die/move away builders swoop in, pay about $1M for the lot, tear the original house down and build a 5,000 square foot, $2.5M McMansion in its place. 

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      • MXMOM
      • MXMOM
      • 2 wk ago
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      Periwinkle Flute true. That is happening here too (not sure where you are. I am in the Greater Toronto Area). Not sure how to get that to calm down. As long as there are buyers willing to pay a ridiculous amount for an oversized house this will continue.  I know the government is looking into flippers as the taxes are being underreported and under collected. That is part of the benefit for the small builders - pay no taxes on the sale because of principle residence exemption, or claim as capital gain and only pay taxes on half the increase.  Plus they aren’t charging sales tax which they are required to do. It’s easy to find these transactions so I think the Canadian government should be more aggressive in assessing taxes and penalties plus shout it from the rooftops when it happens to scare others.   

      Like 1
  • MXMOM Budget Conquistador Periwinkle Flute
    All of this is so true - we find ourselves in a weird situation. There is a large part of me that understands that owning a house isn't necessarily better than renting. However, my rent just raised 20% (it hurt to actually calculate that out) in 2 years. If that is going to become the common occurrence, then no - renting is not better. 
    I agree that there will be a change once baby boomers downsize/die there will be a larger inventory of houses, which will cause the house I purchase now to lose value. I don't know if there is a way to play the housing market to win... It is such a long game that I don't necessarily care - maybe that is wrong as well? 

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      • Budget Conquistador
      • Ready for the next big adventure
      • Khaki_Screwdiver.8
      • 2 wk ago
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      Orchid Device During the last housing bubble,  everything I read said that average house payment on a 30 year loan needs to be no more than 1/3 of the average income for the area. If it's more than that, then something has to change.  Either income needs to go up or housing needs to come down.  Articles I've read lately say that this isn't a bubble.  So I don't know what to think.

      Like 1
      • MXMOM
      • MXMOM
      • 2 wk ago
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      Orchid Device another reason I say we need PSYCHIC financial planners 

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