Pay off car or buy house?

[brick]

You should buy a house. That area appears to be a tame housing market so you should have limited risk from a housing market decline. A 30yr fixed loan should have a low interest rate.
You can pay the minimum on the house and the work on the car. In this way you'll control 125k in assets (leverage) for only a small amount of cash. If the housing market goes up 10% in 2 years you make 12k.

Also, since you're young and self employed you may look into buying a duplex. Your renter will pay part of the mortgage which will give you a lot more feedom.

Finally, depending on the interest rates of your car loan vs a home equity loan you may save money each month by paying off your car and getting a home equity loan for the downpayment. (80 conventional/ 15 home equity / 5 down payment) No PMI with this method.

[Bostaevski]

Are you a member of any credit union? You might be able to refinance your car for free at a lower interest rate. Heck, maybe even a bank would let you do it. I refinanced my car at my credit union at a MUCH lower interest rate.

I don't think the bank will really "care" about your car loan. Everyone has a car payment. What you don't want is any credit card debt.

For $25,000 down you shouldn't have any problems. I'd buy the house, start deducting that interest on your taxes, and what principle you do use to pay off the mortgage should appreciate in value over time, rather than depreciate like it does on your car.

If your credit rating is bad... just buy a house and make payments for a couple months.. suddenly it will shoot up.

[PokerAce]

[ QUOTE ]
Also, since you're young and self employed you may look into buying a duplex. Your renter will pay part of the mortgage which will give you a lot more feedom.

Finally, depending on the interest rates of your car loan vs a home equity loan you may save money each month by paying off your car and getting a home equity loan for the downpayment. (80 conventional/ 15 home equity / 5 down payment) No PMI with this method.


[/ QUOTE ]

I'm not interested in buying a duplex. There isn't much in terms of that in the area and I'd rather not deal with being a landlord.

Getting a home equity loan for the downpayment seems like it might be more trouble than it's worth. Like I said, if I work my ass off, I can probably pay off the car by the end of the year as well.

[PokerAce]

[ QUOTE ]
Are you a member of any credit union? You might be able to refinance your car for free at a lower interest rate. Heck, maybe even a bank would let you do it. I refinanced my car at my credit union at a MUCH lower interest rate.

I don't think the bank will really "care" about your car loan. Everyone has a car payment. What you don't want is any credit card debt.

For $25,000 down you shouldn't have any problems. I'd buy the house, start deducting that interest on your taxes, and what principle you do use to pay off the mortgage should appreciate in value over time, rather than depreciate like it does on your car.

If your credit rating is bad... just buy a house and make payments for a couple months.. suddenly it will shoot up.

[/ QUOTE ]

No, I'm not a member of a credit union. The only debt I have is a $500 limit credit card that I use for monthly expenses and pay off each month and the two car loans mentioned above. Everything else has been paid off.

My credit is pretty good, thankfully. I've decided to go ahead and use the cash for a down payment and pay off the car as soon as I can. I've put my info into LendingTree.com to see what I get.

Thanks everyone for taking the time to give me your input.

[snowbank]

Thanks for the input. I do plan on putting at least $25k down. I don't want to have to deal with PMI.

WOW! Based on your situation that you have described, and you decide to put down $25K to avoid PMI!??! [img]/images/graemlins/confused.gif[/img] I would think you would at least make a couple calculations before throwing $25K there.

[Mr. Now]

Ace,

Definitely pay of that 9% loan as soon as you can because paying off 9% debt on a wasting asset like a car is you best move now.

Also most of the housing stocks are starting to roll over after years of uptrend. This is a strong message that the latest housing boom is pausing-- and is probably over.

What this means to you is that prices are likely going to moderate and maybe drop-- hard. If you can figure out a way to get some temp-housing through the summer and fall and buy your house after September you will probably be in great shape to save some big money on the purchase price. That sets you up for a safe purchase and maybe even some immediate gains if teh selling gets overdone and you buy into it.

The time you have between now and then can be used to line up your financing and narrow your focus to specific neighborhood purchase targets. Time to get ready. Not time to purchase-- just yet.

The basic rule of thumb is that you can borrow 2.5X your documented income less any debt.

1. Pay off car
2. Line up financing
3. Buy late in 2006

Dont let your current lease expiration dictate your major financial moves. The lease expireation is a minor detail compared to the timing and sizing of a house purchase. Sketch out your strategy and then address the lease/current housing issues as a small detail to be managed.

Dont put the cart before the horse. Get some temp housing for the summer if need be. The main thing now is to time your housing purchase. There may be some real piling-on with selling this spring and if you hold you fire it may get overdone with the result being that you can purchase a nice home cheap from desparate/overextended sellers. Most sellers will ask too much in the spring while buyers will be very skeptical and demand a price-reduction risk-abating discount.

[PokerAce]

[ QUOTE ]
WOW! Based on your situation that you have described, and you decide to put down $25K to avoid PMI!??! [img]/images/graemlins/confused.gif[/img] I would think you would at least make a couple calculations before throwing $25K there.

[/ QUOTE ]

Well, no, that's not the only reason. I want to put that amount down to have a low mortgage payment as well as a good interest rate along with improving my chances of even getting a mortgage. I'll probably speak with a professional before I make any final decisions.

[PokerAce]

I'm not sure that I need to worry about prices dropping in this area. The city is actually getting some new major commercial entities and the prices will likely start rising soon, or at the very least stay stable.

My lease expiration isn't the only reason why I want to buy soon. I'm going through a divorce and my family and friends live in my hometown and I hardly see them now. I could use their support. I also would like to start building equity instead of throwing away my money to rent.

[Mr. Now]

OK, just keep in mind the biggest factor in total return is the price you originally pay for the asset. There may be an opportunity to save/gain 5 or 10 percent of the total purchase price here. Say it's 10 percent. OK. This might have the effect of returning you 50% appreciation on your 20% down payment, less closing costs. That might be worth considering.

[Slacker13]

Pay off the car instead of buying a house? That is terrible advice. Never waste cash on something that depreciates. Buy the house. You cannot ever time a market exactly.