Assume you rent an apartment and drive an old car, and you would like to upgrade your life style.
Question #1: If you have to choose between buying a house or a truck, which do you choose?
Question #2: Assuming you can afford to buy both a house and a truck, which one do you buy first?
Before we look at the answers…
A True Story: A young gentleman finished his credit repair work and raised his credit score to 640. This qualified him for the FHA Elite loan for home buyers.
He felt great! He was excited.
So he ran straight to the auto dealership and bought himself a brand new 2018 Chevy Tahoe. (MSRP $47,500)
Then he drove home and called his mortgage loan officer. “I’d like to get approved to buy my first home,” he announced.
So the loan officer took the application and ordered his credit report–and bam!–he got declined.
“Why?” he asked, totally stunned.
His new truck purchase dropped his score from 640 to 565. Too low for any of the first-time home buyer programs! Too low for the FHA 3.5% down payment program!
Not only that, but with a hefty new payment, he no longer qualified for the purchase price he needed anyway.
Maybe the Tahoe is so luxurious, he’ll be happy living in it. (Bad joke, sorry.)
Let’s See How You Did on the Quiz
Answer #1: Buy the house. Real estate is going up in value. You can increase your personal wealth by owning a home. A vehicle goes down in value the moment it become “used.”
Answer #2: Buy the house first, always, even if your credit score is 800. A higher score and a lower debt ratio will qualify you for better, cheaper financing.
The house is more important than the truck. Buy your most important item first (not the easiest to get).
I welcome your comments. Thank you for sharing this with others and on social media. Too many people are shooting themselves in the financial foot by purchasing a vehicle before the home.
When we were ready to purchase our first home, we figured out what we could afford and found one we liked. We were turned down for a loan because we had a car payment. They told us if we sold our car, they’d give us the loan. So, we “sold” our car to my mother. She had just cashed in a CD and had only been getting about 5% interest. The interest we were paying on our car was 13%. We got the home loan and also paid my mom back with 10% interest for the car which she graciously let us keep driving. Win, Win.
That’s an interesting story. Thank you for sharing it.