A House or A Car… Which Should I Buy First?

car first or house firstYou graduated from college, landed a good job, and have been diligently saving money for awhile now.  Your car is getting old and pretty soon you are going to need a new one, but you also have the desire to be a homeowner.  Should you buy a new house or a new car first?  This question is actually extremely difficult to answer.  It truly depends on the immediate financial circumstances of the individual involved.

Before thinking about it, most people would probably advise buying a house before buying a car.  After all, a house is an appreciating asset and a car is a depreciating liability, right?  That statement might be true in the long term, but in reality, most working professionals will eventually buy both a house and a car.  In the end you will have the money for both.  So it’s not really an issue of which is the better long term investment, it’s a question of which one should be purchased first.

I’m going to assume the following:

  • You have about $40K saved in cash.
  • Your current car is old and only worth about $1,500.
  • You want to avoid financing a car.
  • You live in a rental property.
  • You are looking to purchase a new car under $25K
  • You will be a first time home buyer
  • You are looking to purchase a house for about $275K with at least a 10% down payment and 5K in closing costs.

Answering the following questions will assist you in making the right decision based on your own individual situation.

How long will your current car last?
Have a decent mechanic estimate your car’s life expectancy.  Are there any cheap repairs that could increase the life expectancy?  Are the repairs worth the money based on the car’s overall worth?

Will your overall living expenses be cheaper before or after you purchase a house?
Is the total cost of your current rent and utilities significantly cheaper than the cost of a mortgage, utilities, homeowner’s taxes, and insurance?  In other words, which living arrangement allows you to save cash the quickest?

If you buy a house first, how long will it take you to save enough cash in order to purchase a car outright?  How much money can you comfortably afford to save each month?

Likewise, if you buy a car first, how long will it take you to replace the cash necessary for a down payment on a house?  How much money can you comfortably afford to save each month?

Do you expect decent short-term real estate appreciation in the housing market you intend to buy into?  Ask a real estate agent for numbers on local market trends.  Have home prices been rising or sinking?  What do the overall unsold inventory numbers look like?  In other words, is there any foreseen disadvantage to holding off on a house purchase for a year?

Consider the following scenario:

You really want a new house, so you decide to deal with your old car’s problems and instead purchase a new house first.  Now you have zero cash, but you do have a slowly appreciating asset, a beautiful new home.  6 months later your old car completely breaks down and the repair costs are close to the total value of the car.  If the car isn’t worth the money, you will have no choice but to finance a new car.  You will now be paying interest on an auto loan in addition to paying your monthly mortgage payments.  The annual appreciation of your house is counterbalanced by the finance charges you are paying on your car loan… at least for the first couple of years.  In the end was it really smarter to purchase the house first?

The bottom line:  As I stated earlier, most people assume that buying a house first is the smarter choice.  While it very well could be, it isn’t necessarily the best order of operations for everyone.  It completely depends on individual circumstance. 


  1. mind says

    1. buying a new car is financially stupid – it loses half of it’s value once you sign the papers

    2. housing prices are set to drop drop drop in the near future, and long term

    3. having said that, the long term prospects of USD isn’t that good, so buy some euros and some gold.

  2. says

    Great blog! Choosing which to buy first – a house or a car. Whew! One should think it over a hundred times before making a choice. List all the pros and cons. I guess, it would really matter on one’s personal choice and priorities. Money is all a big factor in making a decision. If I were to choose at this point, I’ll probably buy a house, since my car is still in good condition and I had recently installed a new mazda carburetor. I really want to have a house on my own especially that I’m planning to get married this year. 😉

  3. says


    My point here is not to debate the obvious fact that a car depreciates quickly. Nor is it my goal to argue for or against someone’s decision to purchase either a new house or a new car. The purpose of this article is to simply discuss the following question:

    If you are in a stable financial position and you intend to eventually purchase both a house and a car… which one should you buy first?

    My answer: It depends on your immediate individual circumstance.

    As for buying gold and Euros… that’s not bad advice. As a conservative investor, I personally buy into shares of international mutual funds.

  4. says


    I completely agree with your decision to purchase a house first. If your car is in good shape, there is no reason to waste money on a new one right now.

    Good luck with the wedding and the house. 😉

  5. Chad Whitworth says

    I am in a similar situation. My truck has 165,000 miles on it and it is almost time to upgrade. I just recently graduated with an Electrical Engineering degree and started at $57,000 a year. Presently my only bills are a truck payment and truck insurance. I plan to purchase a house in about two years once my girlfriend graduates. I am putting money aside for a down payment already. Being that I am waiting at least two years to purchase my home, is getting a new truck a bad idea. I have about 2000 dollars extra each month. What are your views. My credit score is 750 and and the home price will be in the high 200’s. Will buying a truck hurt me that much.

  6. Drew Chernoff says



  7. says

    Sorry it took me so long to reply. Somehow I overlooked your comment. To answer your question…

    I’d say it depends on whether or not you need the new truck. There is a big difference between a need and a want. If your old truck is breaking down on you and buying a new vehicle is inevitable, it might not be a bad idea to invest in a new car now. As far as your credit score is concerned, it probably won’t break you. But it’s always better to have your car paid off.

    From someone who knows me well, I appreciate the kind words.

  8. says

    I would easily go for buying a house rather than a car. Reason being is that in the long term the house will only grow in value and the car will only depreciate in value. However, buying a car is easier than buying a house. For example, in the UK, its difficult to find a house to buy in Nottingham!

    Very good article by the way! Very useful.

  9. says


    Great question.

    Based on the assumptions your provided, I would hypothetically go for both :-) $32,500 is needed for the house which leaves $7,500 for a car. Add that to the $1500 you will get for the old car, which gives me $9000. For about 10-12K, there are some good year end clearance deals on low cost new cars, and I would work to find the addtional money.

  10. says

    @Super Saver:
    Not a bad way to look at it… Put roughly 10% down (plus closing costs) on the house and then buy a brand new low cost car.

    The only problem I see in this scenario is the required monthly PMI (mortgage insurance) requirement for not putting down the full 20% of the house price. That will put you out about $120 a month, and that money just vanishes into thin air. But, at least you won’t have a car payment.

  11. Ryan Juniper says

    Really interesting post

    Im recently married, and one year away from graduating Medicine. My wife has just graduated, and between us our income is going to be around AUS$60,000 next year, and AUS$110,000 the year after.

    So Im wondering, is the delay in buying a house for the sake of saving for a car (probably a year) a big loss?

    Or is it possible to save a home deposit, and borrow extra to just buy a car and thus have both with only one payment?

  12. Stephen says

    I saw a commercial recently that suggests that a house historically doubles in USD value every 10 years. This could be an estimated annual 10% return.

    Effectively, your $275k house could be estimated to gain enough value to completely afford your new car after even just a year. (assume your rent is roughly equal to your mortgage.)

    I think that the biggest question determining the answer is your long term outlook. A car travels with you and a house doesn’t. If you get promoted to a different office, get married, have more kids, or get tired of the neighborhood in a couple of years you don’t get much gain on owning the house – especially if you’re in the losing part of the 10 years.

    To the newness of a car, if you’re happy with a $1,500 car, you will probably be happy with a 5-10 year old better condition car. The question of a 60,000 bmw versus a 30,000 bmw could come down to just the mileage and style.

  13. says

    Given the fact that the housing market is estimated to be on the decline for at least the next 9 years, I’d say get the car, then play wait and see for when things REALLY bottom out before purchasing a home.

    Idealy with the market being as it is, you would be crazy to invest into a person owned home in the US with so many Forclosed properties for sale, some at a fraction of the cost of the actual home.

  14. MGZ says

    I was searching for an article on this subject and found this post, but I stopped reading immediately when you said you assumed people have $40K saved. I actually laughed out loud.

  15. Kellw says

    I agree with MGZ’s comment. Most people do not have that much in savings, especially not a recent college grad (student loans, hello?!). You have made your assumptions based on an ideal situation. What about people who need to finance a house purchase and a car purchase?

    I am a recent college grad with just about enough savings to finance buying a house or buying a car. I bought the house first. While I could afford both the car and house payment (btw, if considering a house purchase please consider all costs, principal and interest, taxes, homeowner’s insurance, mortgage insurance, homeowners association fees and maintenance fees; same with car: car payment, insurance, taxes and cost to maintain), I decided to buy the house first since the car payment would increase my debt to income ratio and I would qualify for a lower mortgage amount. Also, when you take out new credit, your credit score temporarily takes a hit. With a depressed score it is easier to get car financing than mortgage financing, imo.

    And as for waiting to buy the house, my mortgage payment is cheaper than renting. So I will be saving about $200 a month for the 9 years that some others are waiting out for the housing market to hit bottom.

  16. Glo says

    This is a great post. I have found it very helpful as this question has been on my mind for a couple of weeks. I am itching to buy used BMW for $30K that I am in love with but I would have to finance it. The APR would only be 0.9%, so it’s not that big of an interest burden. However, I am looking to buy a house in a few months as well and didn’t know if buying a car first would hinder me.

    Kellw makes a good point about it being easier to buy a car than a house after the credit ding from opening a new credit. So sadly, I think I am going to wait on the bimmer and and get the house first. :(

    Thanks for helping me make this decision.

  17. House Poor says

    I think the house v. car be analyzed in conjunction with one’s circumstances. I’m in a similar yet different situation. I’ve graduated from school for 10 years now and still have no car. Living in a mid sized expensive working city, I changed homes whenever I changed jobs to somewhere walking distance to work. Finally bought a place a couple years back. I am currently contemplating upsizing from my existing condo 30 minute walk from downtown to 1) a bigger house also walking distance to downtown where I work and pay $400k to $500k or 2) moving to the suburbs ($100,000 to $150,000 cheaper) and buying a car and commuting to work. Because I have the luxury of walking, public transit, and biking, I think I will end up choosing option 1, especially if I think the house will appreciate. The overall rate of return on option 1 will also be higher over time. For either option, I can also easily advertise for roommates to offset more than half the mortgage. However, with option 1 I save myself from car payments, car insurance and the $200-400 parking costs downtown each month. Walking for an hour each day has also eliminated my need for a gym membership. When I need a vehicle, I rent on the weekend and take advantage of discount weekend rates using a credit card that covers collision insurance. For those people whose workplace is not easily accessible, it’s a bit more unfortunate as the car becomes a necessity.

    Whether you pick the house or the car or both, it is a better idea to get the house first unless after getting the car your credit is equal or better off than you were before because you then have to qualify for a mortgage with a car loan under your name.

  18. Steve says

    For most people, absolutely NOT the car! A MAJOR point that appears to have been left out; debt-to-income ratio. As a mortgage lender for many years, I can’t tell you how many people couldn’t qualify for the home loan they wanted because they got the car first! A $300 car payment can easily decrease the amount of a home loan someone qualifies for by $60,000!!
    If you are in this situation, talk to a knowledgeable mortgage loan officer and make sure you understand what your debt-ratios are and how a new car payment would effect your ability to buy a home.

  19. BB says

    My car is about 20 years old, it breaks a lot lately, I spent like $100-200 every months for the past 6 months fixing it. I really need a new car. At the same time, I just found the perfect house for my family at a very good price. I don’t know what I should do. Buying a car or a house?? I only have 5K saved up, so either a car or a house, I have to get a loan/mortgage. My concern is if the bank will give me the loan/mortgage for both purchases within the same year, in case I buy the house first and then the car 3 months later, or vise vera? I have no problem making the payment for both each months, but will the bank give me the credit?? that’s the issue.

  20. Gustavo says

    I am completely for buying a home first and bypassing the purchase of a vehicle at all costs. I know for many the decision may be a difficult one at best, if not entirely going against mass consumerism. Should one choose not to buy a car one must then try to fit in with so much pressure of people mocking you for driving an older model. Don’t do it! Buy a home, you’ll thank yourself later, believe me.
    I could easily buy a new 2006Lexus IS250, I’ve had my eyes on, selling for about 18k.
    I recently began a job as a compliance officer about 8 months ago, with a fair starting salary of about 30k. The downfall: having to drive about 1 hour and 20 minutes every day thru heavy city traffic(not very pleasant at all) and adding many miles to my car. My apartment rent is about $555.00 a month and its allowing me to save money because I regulate my expenses as it is a one bedroom. I would love a house but all in good time! An 18,000 dollar car would be worth 3,000 in about 10 years instead use the 18,000 to put down on a home. It will build equity and you can invest the money from to buy other homes as investments!

  21. Courtney says

    It’s now 2012, and this article is still something that can be referenced. I have to agree with what some of you stated, but one that stood out was Steve, posted May 6, 2011. Debt to income ratio is MAJOR when purchasing a home. I am in the process of purchasing a home now, and thankfully my lender and I had been in contact over a course of months beforehand. So when I honestly asked him what is opinion was on me buying a car, he said “Absolutely not” without even blinking! And he showed me the difference in how much house I would be able to finance and how it would appear to the Bank. I was and am thankful that he told me that. Now the bank is willing to also finance a new car purchase, and it won’t hurt my home loan.
    So my advice, if your car is in good shape, and not a need at this point, and you are interested in purchasing a home, get the house first. Get the keys and set up shop, then do some car shopping!

  22. Memphis says

    GREAT POST AND TOPIC! Buying a new car gives you a temporary high, whereas buying a home gives you a place to live, cherish, and appreciate. The key to getting a house or car is CREDIT. The better your CREDIT score is the better interest rate you will get for either one. Getting want you NEED rather than what you WANT is always the better choice. If you NEED and can afford both than do it, BUT get the house first because you will get a higher loan amount through your lender. PLEASE don’t buy an expensive car that you (and possibly family) could have been living in a house.

  23. Missouri says

    Well , to the authors point, i totally agree with him – it depends on what situation and what stage of life u are in . My take is if you have an old car, buy a new one before buying the house. I would consider house as a want and car as a need. If you have a job you need some form of transportation and the premium would be way less that the mortgage. Imagine a situation where you spend all that saved money in buying a house and then your car breaks down, what are you going to do. Put the money in the car maybe a new one ( not high range luxury cars), push your house dream to another 1 to 2 years. Maybe payoff your car before buying the house , this way you are all set. Just worry about the mortgage and not when your car is going to break down.

  24. kankam k. sarkodie says

    Even though our needs may defer, l believe acquiring a house is more important than buying a car. I recently graduated and landed a good job. I started savings towards buying a car since then. Somewhere along the line, I decided to build a house and postpone the car acquisition. Two years down the line, my building is 85% complete, and am still without a car. My attention on the acquisition of the car has again shifted to next year, whiles l concentrate on completing my project this year. Last l checked, the value of the current state of the project is three times the price of the car now. I believe l made the right decision in choosing the house over the car.


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