Personal Finance

Opinion on Financing Car when buying first house

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  • Jul 9th, 2015 9:44 pm
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Jr. Member
May 20, 2015
132 posts
49 upvotes
Toronto, ON

Opinion on Financing Car when buying first house

I am going to be getting a mortgage soon in December for a new first house I purchased.

I also need a car soon, but I am not sure if its a good idea to finance a car under my name in this busy time with a mortgage. I am worried it might cause issues with getting a mortgage as this is my first time and I am young (24yrs old). My credit is fairly good though.


Should I just stick to a cheap car that I can pay in cash for like $3000 ?

If I were to finance a car, I was thinking something within $20000 at 0%


What are your thoughts on this.

Thanks
23 replies
Deal Addict
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Dec 19, 2007
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Buying a house in Toronto AND thinking of financing a new car? All at 24 years of age? Hmmmm, probably not a wise decision but...

Are you living on your own? Is this the first time managing yourself out of your parents house? Does your income support it? Do you have any other debts? Are you getting the traditional parental subsidy that you're entitled to?

I have so many questions...
Deal Fanatic
Apr 16, 2007
8134 posts
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Financial District B…
The monthly service commitment of the auto loan will factor into your TDSR/GDSR when the time comes to apply for that mortgage.
Best to do so after mortgage.
----------------------------Licensed Credit Bureau member, S1, FI Automotive, CCP forums most banned = x 13 and counting, guess who that is?... stomped to the curb once again
Deal Addict
Jul 11, 2010
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Generally it is not a good idea to take on any additional debt before you are approved for a mortgage and also until the mortgage closes. The payments will be counted as part of your GDS and TDS ratios. Depending on your income and any other debts this may or may not affect your application.

With respect to buying a used $3000 car my personal view is you might be leaving yourself open to unforeseen repair bills down the road - money that could be used for your house.
There are many good cars out there under $20000 whether you buy or lease and you are getting a warranty which is important.

Your closing is under 6 months. Can you get by leaving the car purchase until after closing?
Doug Boswell
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Jr. Member
May 20, 2015
132 posts
49 upvotes
Toronto, ON
mikeymike1 wrote: The monthly service commitment of the auto loan will factor into your TDSR/GDSR when the time comes to apply for that mortgage.
Best to do so after mortgage.
dougboswell wrote: Generally it is not a good idea to take on any additional debt before you are approved for a mortgage and also until the mortgage closes. The payments will be counted as part of your GDS and TDS ratios. Depending on your income and any other debts this may or may not affect your application.

With respect to buying a used $3000 car my personal view is you might be leaving yourself open to unforeseen repair bills down the road - money that could be used for your house.
There are many good cars out there under $20000 whether you buy or lease and you are getting a warranty which is important.

Your closing is under 6 months. Can you get by leaving the car purchase until after closing?
Thank you so much.

Yes I think I can manage

I also have some CC debt I hope those wont effect me too much though (around 3k, I plan on getting rid of it this month)

exactly the advice I was looking for
Jr. Member
May 20, 2015
132 posts
49 upvotes
Toronto, ON
spintheblackcircle wrote: Buying a house in Toronto AND thinking of financing a new car? All at 24 years of age? Hmmmm, probably not a wise decision but...

Are you living on your own? Is this the first time managing yourself out of your parents house? Does your income support it? Do you have any other debts? Are you getting the traditional parental subsidy that you're entitled to?

I have so many questions...
I live with parents, turning 25 this year

I have money saved up for down payment, and parents are helping out (20k which I agreed to pay back)

And my income will support it, and I plan to rent also to subsidize my mortgage payments
Deal Expert
Aug 22, 2011
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If your income can support buying a new house and car....why not?
Is it the best financial decision (likely not); but it all comes down to money.
Deal Addict
Jul 11, 2010
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prirai wrote: I live with parents, turning 25 this year

I have money saved up for down payment, and parents are helping out (20k which I agreed to pay back)

And my income will support it, and I plan to rent also to subsidize my mortgage payments
Don't forget you need to show proof that you have enough saved up for closing costs. Generally about 1 1/2% of purchase price. There is also the land transfer tax - Ont + Toronto if your home is in Toronto. As a first time buyer you will get some rebated back but it depends on the value of the house. You can use an online property tax calculator to get an estimate.
Just as an FYI, for the $20000 your parents are helping you with the lender will require a signed letter from them that it is a gift and not repayable.
Doug Boswell
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Oct 12, 2006
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prirai wrote: I live with parents, turning 25 this year

I have money saved up for down payment, and parents are helping out (20k which I agreed to pay back)

And my income will support it, and I plan to rent also to subsidize my mortgage payments
When I bought my car years ago, my parents effectively paid for the full price of the car on my behalf. And then I made monthly payments back to my parents over the course of 5 years. I don't know if that's a viable option for you. But that effectively made my car financing off-the-books.
Sr. Member
Jan 5, 2015
615 posts
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Edmonton, AB
Nothing wrong with buying a cheaper (used) car.
All cars eventually need some kind of maintenance work.

I've had mine for about 4 years now, with no major issues.
230km 2002 Toyota Corolla.
Deal Expert
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Jul 5, 2004
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If you can afford it then go for it, but I wouldn't worry about finding a car for 0%. Instead, find a car you want that fits into your budget. Your budget includes all costs, the price of the car, taxes, fees and interest, which will make up the entire payment. A $400 monthly payment is the same whether the interest rate is 0% or 5%. It really doesn't matter who your money goes to, the bank or the dealership, all that matters is the total amount of your payment. Besides, you will have a very difficult time finding a used car for 0%.
Deal Addict
Jul 29, 2006
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get the car after the mortgage
Deal Guru
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Feb 2, 2014
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Toronto
prirai wrote: I am going to be getting a mortgage soon in December for a new first house I purchased.

I also need a car soon, but I am not sure if its a good idea to finance a car under my name in this busy time with a mortgage. I am worried it might cause issues with getting a mortgage as this is my first time and I am young (24yrs old). My credit is fairly good though.


Should I just stick to a cheap car that I can pay in cash for like $3000 ?

If I were to finance a car, I was thinking something within $20000 at 0%


What are your thoughts on this.

Thanks
It's impossible to say without seeing more numbers. If the car loan pushes your debt-service coverage ratios too high, then yes, wait until after December.
Kevin Somnauth, CFA
Principal Broker/Owner - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Deal Addict
Nov 22, 2012
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CdnRealEstateGuy wrote: It's impossible to say without seeing more numbers. If the car loan pushes your debt-service coverage ratios too high, then yes, wait until after December.
This is the ONLY correct answer.
Deal Addict
Jun 12, 2015
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dougboswell wrote: Just as an FYI, for the $20000 your parents are helping you with the lender will require a signed letter from them that it is a gift and not repayable.
Is this true? I never heard of this before. From a tax perspective cra doesn't care if the loan is for a house right?

If the parents charged interest, then I'd say cra would want to collect that interest income, but here it's interest free+for a none income producing house.
Deal Addict
Jul 11, 2010
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Dynasty12345 wrote: Is this true? I never heard of this before. From a tax perspective cra doesn't care if the loan is for a house right?

If the parents charged interest, then I'd say cra would want to collect that interest income, but here it's interest free+for a none income producing house.
This is a standard practice and is required by lenders. CRA is not in the picture. It can only be parents or grandparents that give the money. If it was a loan it would have to be included in the liability section.

Due to recent anti-money laundering laws all monies used in a down payment must be accounted for. If it is from savings or RRSPs your last 3 months of bank statements must be submitted to show that the money has been in or built up over time. Any large deposit to the account must be explained. Lenders require much more documentation to be submitted than if it is refinance or switch at renewal. You must also show what account your deposit cheque when your offer is accepted came from.
Doug Boswell
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Jun 12, 2015
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Okay anti-money laundering makes sense. I thought you meant they need to sign something for tax purposes.
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Jan 13, 2012
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nx6288 wrote: get the car after the mortgage


This times a million. You'll be better able to judge how much you can afford the vehicle. I can almost guarantee the OP will be house-rich, cash-poor. A car comes straight from the cash side of things.
Deal Addict
Apr 4, 2013
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dougboswell wrote: <snip>
Just as an FYI, for the $20000 your parents are helping you with the lender will require a signed letter from them that it is a gift and not repayable.
This does not apply in this situation as there appears to be an agreement between the OP and his parents that he will repay the money. This makes this a loan and not a gift. This loan will be added to the OP's liabilities on the mortgage application.

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