Should You Buy a House or a Car First? Make the Right Choice.

Should you buy a house or a car first?  There is no perfect answer to this question.  Rather, there is a choice that best serves a buyer’s need and preference.

In this post, I will share the factors that I considered in my decision to buy a house versus a car first.  Note that I will loosely refer to obtaining a car as a purchase whether it is a lease or a sale.

Of course, if I had unlimited resources, I would have purchased a house and a car at the same time.  Unfortunately, like most regular folks, I could only afford one at a time.  So, I decided to buy a home. I believe that it was a great decision for me.

Personal Needs

In my mind, there are several situations that will sway me to get a car first. 

People with kids need access to a vehicle to efficiently bring them to school and other activities.  Also, they will need it to transport bigger grocery hauls.

Canada has a massive land area.  Unfortunately, not all areas are serviced directly, serviced frequently enough, or serviced at all by public transit.  This may pose a physical challenge to some people who would need to walk a long distance or transfer several times to complete their daily activities.

Alternatives and Other Considerations

I weighed the alternatives and many other considerations while deciding to buy a house or a car first.

If I were to purchase a home first:

• Can I purchase a home that is conveniently located?
• Is there a bus stop close to my current workplace?
• How do I get to groceries, amenities, and other places of interest via public transit? 
• After fulfilling the initial payments associated with a home purchase, would I have enough emergency funds?
• Would I be able to handle the responsibilities of being a homeowner such as repairs?

If I were to purchase or lease a car first:

• How would this decision affect my finances and ability to purchase a home?
• Would renting be an attractive alternative?
• What are the risks of renting, for example, renoviction?  Renoviction is described by the government of British Columbia as an eviction that is carried out to renovate or repair a rental unit.

Effect on my Total Asset

My home is my biggest investment to date.  It is not unusual to hear people in Lower Mainland, British Columbia say that the value of their home has doubled in less than 10 years.  That is an excellent return on investment. I have not done any renovation on it yet but if I do, it may increase its value. 

On the other hand, cars are said to depreciate by 20% in the first year alone.  In fact, values start to depreciate the moment they leave the lot. 

Therefore, a home purchase would increase my total asset in the long run.  Another advantage of waiting to buy a car was that my ICBC experienced-driver saving was increasing each year.   At the time of purchase, I qualified for a 25% discount for my auto plan insurance.

Effect of the First Purchase on the Other

I considered the effect of my first purchase on my credit score and buying power.

Credit Score

A credit score is a three-digit number that demonstrates a borrower’s ability to manage credit.  A good credit score helps you secure loans and other credit products, and at lower interest rates. 

A car loan can result in a dip in your credit score because of the new debt.  However, on-time car loan payments will eventually support your creditworthiness. 

I noticed a 24-point decrease in my credit rating on the month of my car purchase.  But, it started to increase the following month.  I don’t think this would create a big challenge unless you plan to purchase a home right after, and the drop in credit score changes your category and the perceived risk you pose to lenders.

Refresh Financial has a clear explanation of the credit score ranges in Canada, eligibility for loans and credit products, and interest rates. 

Buying Power

Buying power is defined by Loans Canada as “the difference between your income and your payment obligations”. 

Monthly car payment is in the range of $300 – 600, depending on a few factors.  Add to this the car insurance cost, which varies per province, and several other factors.

Car payments will then result in weaker buying power.  In turn, this will affect your ability to get a mortgage and the amount that you will be qualified for.  Try this Mortgage Calculator to see how much you can afford before and after car purchase.

Need to Establish Roots or Ability to Quickly Move

As immigrants, our roots may not run deep.  Opportunities in other cities, provinces, or even countries may encourage us to make another move.  Owning a house may impede a quick move.

I have not closed my doors on opportunities to live in another place.  But, it didn’t take me long to call British Columbia, Canada home.  Thus, I did not see a problem with buying a house first.

Contribution to My Overall Happiness

Having your own car results in time savings, convenience, and freedom to roam.  You are no longer at the mercy of public transit.  You do not have to deal with drunk, racist, or interesting passengers that may share a ride with you.  Also, you do not have to run after the bus and be frustrated with drivers who close the doors 2 seconds before you get to it.

Having your own home results in a long list of advantages.  This purchase will allow you to have your precious privacy.  You will have no fear of renoviction.  In addition, you will gain pride in ownership.  While waiting for your chance to purchase a car after a home, you will gain additional perks.  For example, you will be forced to walk, be able to leave the stress of driving to the professionals, and use the time in transit to read or do other errands.

Immigrants may initially have limited resources compared to the rest of the population.  This forces us to thoroughly weigh the various factors in buying a house or a car first.  This decision, its impact, and its perks are entirely personal.  But, I hope that the factors I shared will help you make your decision to buy a house or a car an easier one for you.