Personal Finance

New car or home?

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  • Sep 15th, 2012 3:41 am
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Jr. Member
Oct 16, 2009
111 posts
30 upvotes

New car or home?

Hi. I have a decision to make and I would appreciate some input.

My fiancee and I want to start a family soon-ish (neither of us are in a rush; thinking in a few years) so we want to get our own place (currently renting a place). We were about to start the process by contacting a mortgage broker.

But then we noticed issues with the car and took it to the mechanic. It's old... we bought it used and the mechanic said that the amount to repair it is not worth it and we should get a new car. It is safe to drive BUT it will likely fail the next emission test (next summer) making it not drivable. I just started looking into getting a new car (sick of dealing with used car issues... and buying a used car was a headache last time), a 2012 model we can get a little cheaper this time of year before the 2013 models arrive.

But. Then I remembered that expenses count against how much mortgage we can borrow. So getting a new car now will reduce the mortgage qualification we were thinking about getting in the next few months. We want to get something in the GTA so we need to max out the qualification.

So what should we do? Get the car anyway cause it won't affect the mortgage qualification as much as I think it will? Wait on the car, get the mortgage then get a more-expensive 2013 model car?
14 replies
Sr. Member
User avatar
Jan 12, 2011
854 posts
274 upvotes
Toronto
jellytot88 wrote: Hi. I have a decision to make and I would appreciate some input.

My fiancee and I want to start a family soon-ish (neither of us are in a rush; thinking in a few years) so we want to get our own place (currently renting a place). We were about to start the process by contacting a mortgage broker.

But then we noticed issues with the car and took it to the mechanic. It's old... we bought it used and the mechanic said that the amount to repair it is not worth it and we should get a new car. It is safe to drive BUT it will likely fail the next emission test (next summer) making it not drivable. I just started looking into getting a new car (sick of dealing with used car issues... and buying a used car was a headache last time), a 2012 model we can get a little cheaper this time of year before the 2013 models arrive.

But. Then I remembered that expenses count against how much mortgage we can borrow. So getting a new car now will reduce the mortgage qualification we were thinking about getting in the next few months. We want to get something in the GTA so we need to max out the qualification.

So what should we do? Get the car anyway cause it won't affect the mortgage qualification as much as I think it will? Wait on the car, get the mortgage then get a more-expensive 2013 model car?

Getting a car will affect your mortgage qulification. Sit down with you fiancee and discuss what you need in a house and get a realtor to send you automated listing (no signing of contracts required) and see where you stand financially on what is avaialable. Right now a starter home in the GTA in a decent neighbourhood will run you at least $400K. Will value of homes go down, you just never know but prices have stabalized in many areas and some areas have also seen a drop. All depends what you want but with the new mortagage rules approvals are more tight...

In terms of a car if you don't want to settle with something old then you have no choice but to buy a new car...
good luck
Riz - Sales Rep. Search Realty Inc. Brokerage
GTA-MLS -- Sell For More. Buy For Less
Deal Addict
Jul 11, 2010
1294 posts
329 upvotes
Toronto
Buying a car before a house will add debt to the TDS -total debt service - a number that is used to qualify you to get a mortgage approval. This past July the government lowered this number which effectively reduces the size of a mortgage you could get. Either a lower priced house or a larger downpayment will be needed. Check out the car deals out there. Some are offering 0% or 1.9% car loans which will help keeping the payment down. It is a tough choice that you too will have to make. Good luck
Doug Boswell
i
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Jun 14, 2012
1717 posts
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The solution to this seems obvious: Get a 5 year old car for under $10k and pay for it in cash.
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Mar 4, 2011
660 posts
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Surrey
Xiaohaibao wrote: The solution to this seems obvious: Get a 5 year old car for under $10k and pay for it in cash.
This. It is stupid to buy a new car. Try and get a car that has just gone off of a 4-5 year lease. Practically new (if the owners were good owners) and waaay cheaper.
Fulfillment: 1930, 1966, 1975, 1980, 1981 9.20 14:00, 1984 3.14
Member
User avatar
Mar 3, 2012
231 posts
39 upvotes
Winnipeg
Wait on the car, get the mortgage then get a less-expensive 2010 model car.
Member
Jul 1, 2008
259 posts
33 upvotes
As the above poster mentioned getting a used car for a decent price is probably a solid option for you. Just to add on to that, I would say look at the option of buying the car in the U.S. In general you will be saving a decent amount by going this route. And also as of today the Canadian dollar is soaring in comparison to the $US as well (its currently at $1.03 US)

There is a great post about buying a car across the border in the Automobile section on this forum.
Deal Addict
Jun 12, 2008
1622 posts
1206 upvotes
Ripley
I would get rid of the car completely. I can't see a real need for a car with a transit system. That would give you the cost of insurance and maintenance to go towards the mortgage payment. That means a nicer house or a shorter mortgage.
Deal Addict
Feb 4, 2008
3137 posts
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jellytot88 wrote: Hi. I have a decision to make and I would appreciate some input.

My fiancee and I want to start a family soon-ish (neither of us are in a rush; thinking in a few years) so we want to get our own place (currently renting a place). We were about to start the process by contacting a mortgage broker.

But then we noticed issues with the car and took it to the mechanic. It's old... we bought it used and the mechanic said that the amount to repair it is not worth it and we should get a new car. It is safe to drive BUT it will likely fail the next emission test (next summer) making it not drivable. I just started looking into getting a new car (sick of dealing with used car issues... and buying a used car was a headache last time), a 2012 model we can get a little cheaper this time of year before the 2013 models arrive.

But. Then I remembered that expenses count against how much mortgage we can borrow. So getting a new car now will reduce the mortgage qualification we were thinking about getting in the next few months. We want to get something in the GTA so we need to max out the qualification.

So what should we do? Get the car anyway cause it won't affect the mortgage qualification as much as I think it will? Wait on the car, get the mortgage then get a more-expensive 2013 model car?
You had better sit down and do some number crunching. From what I read you want to purchase the most expensive house you qualify for and then take on a vehicle payment as well. You are setting yourself up for some lean times.

Figure out what you can afford for both housing and vehicle costs and then start making decisions.

I have no doubt that you can qualify for a vehicle loan/lease after buying the most expensive home you qualify for, but that really is not the most prudent approach.
Do your mortgage math correctly!
Deal Guru
Dec 11, 2008
13064 posts
3754 upvotes
sslinn wrote: You had better sit down and do some number crunching. From what I read you want to purchase the most expensive house you qualify for and then take on a vehicle payment as well. You are setting yourself up for some lean times.

Figure out what you can afford for both housing and vehicle costs and then start making decisions.

I have no doubt that you can qualify for a vehicle loan/lease after buying the most expensive home you qualify for, but that really is not the most prudent approach.
+1

No reason to maximize how much you can borrow and still have car payments on top. Be realistic and budget what you can afford now and when you start to have a family (down to 1 income) and include your savings/retirement plan.

Buying a newer (more expensive) car is NOT saving you money. 1) it's a deprediating asset and 2) by stretching your dollar for the new car, you are going to be paying many many times over the price if you are maxing out your mortgage on top of the car because the interest you could be saving by paying down the mortgage faster is going into a depreciating asset. So the cost of a new car is much higher than the initial price. Buying an older car is saving you much more money even with the extra work that is required because your payments will be much lower.
Deal Addict
Jan 30, 2012
1836 posts
1399 upvotes
TORONTO
jellytot88 wrote: But. Then I remembered that expenses count against how much mortgage we can borrow. So getting a new car now will reduce the mortgage qualification we were thinking about getting in the next few months. We want to get something in the GTA so we need to max out the qualification.

So what should we do? Get the car anyway cause it won't affect the mortgage qualification as much as I think it will? Wait on the car, get the mortgage then get a more-expensive 2013 model car?
The fact that you're asking this question suggests that you might be straining yourself financially to buy a house and a replacement car.

The amount a bank is willing to lend you is separate from how much you should borrow. Take a hard look at your finances and think about scaling back your expectations so that you have reserves to deal with the unexpected.

Buying a house often comes with all sorts of surprise expenses. And if you're thinking of starting a family in the next few years, you should know that kids can be VERY expensive :)
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Aug 16, 2007
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zeddy wrote: I would get rid of the car completely. I can't see a real need for a car with a transit system. That would give you the cost of insurance and maintenance to go towards the mortgage payment. That means a nicer house or a shorter mortgage.
There is such a small percentage of people in Canada that can handle life without a car - It's not a suggestion that is applicable to anyone other then a small few (in a downtown core, etc)

That being said, get the mortgage you want then try to buy the new car - worst case, they say no and that you're over borrowing. Best case they say yes and you're good to go. Auto loans will be easier to obtain then mortgages from everything I can tell
Deal Addict
Oct 28, 2009
1314 posts
289 upvotes
Buy the house, its an investment. Later buy used for the car, it's an expense.
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Apr 30, 2009
2422 posts
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riz1 wrote: Getting a car will affect your mortgage qulification. Sit down with you fiancee and discuss what you need in a house and get a realtor to send you automated listing (no signing of contracts required) and see where you stand financially on what is avaialable. Right now a starter home in the GTA in a decent neighbourhood will run you at least $400K. Will value of homes go down, you just never know but prices have stabalized in many areas and some areas have also seen a drop. All depends what you want but with the new mortagage rules approvals are more tight...

In terms of a car if you don't want to settle with something old then you have no choice but to buy a new car...
good luck
Great post.
Deal Guru
User avatar
Nov 5, 2001
11976 posts
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Edmonton
Used car from the USA as another poster mentioned. Under $10k after conversion, taxes and import fees for something 4-5 years old with low milage that will run you 30k for a new 2013 from a canadian dealer.

Taking on a new car loan when you are saving for and getting into your first house just does not make sense.

Another bit of food for thought: have you considered what happens if the real estate market even has a 10 percent correction after you buy your first house? That could be 30k to 50k, more than the cost of a new car you are worried over...

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