Applying for any loan can be an intimidating process. But with the real estate market booming, many people are wondering which they should apply for first; a car loan or home loan. While there are really no wrong answers, applying for a car loan first may save you more over time. Here’s why:
Most financial professionals would argue that it’s better to start with a car loan than a home loan. There are reasons for this. First, a car loan will get you in the habit of making monthly payments. Substantially cheaper than a mortgage payment, it will also help you build credit that will ultimately impact your first home loan interest rates. Whether a new car or used, a car finance calculator can give you a basic idea of how much your payment would be based on the purchase price and down payment.
If buying a home is short for you, you’ll want to play it smart on how much you put down and where your savings are. You may be better off with a used car if your gross income or credit score isn’t up to par for home loan approval. While using the car loan to improve your chances for home financing in the future, you’ll want to take time to think about the total loan amount for your car too. When you try to get a mortgage, lenders will review all your loans and make decisions on what you can afford.
When making a car purchase, be sure to get the best value by checking the car’s make and model in Kelley Blue Book. This tool will be invaluable as you search for a car that will leave you with money at the end of the month to save for that house.
Down the Road
When it’s time to get a loan for your first home or even a new loan for a second home, there are perks in a home purchase that people often forget about. Tax credits and the tax benefits to homeownership alone are one reason some people would rather start here than with a car loan. In short, owning a home comes with perks.
Whether your current concern is whether or not it’s the right time for a home makeover, if you should go back for that car loan now, you’ll still want to consider how your home impacts your overall credit report and ability to finance more. For one, homeowners have the ability to itemize deductions in a way people who don’t own homes cannot. Maybe you work out of a home office and don’t have any real need to own a car. If public transportation or other options work, your next best move might be jumping first toward applying for a home loan.
Before you make any decisions, consider the potential income a home could mean for you. While looking around, consider real estate that will give you options. For example, a multi-family home could be a great way to earn a passive income or help with monthly payments. Whether you use the home as a primary residence or plan to one day turn it into a rental property, these are things to consider before even applying for a home loan.
Benefits to Both
Eventually, when you have them both, you’ll be more interested in how to account for home improvement expenses on your taxes or the zero to sixty-speed ratios in your new sports car. But for now, your decision is quite simple. Which comes first? Home or car? There are benefits to both. The car offers a chance to look better to home lenders while the home can save you bundles in tax credits and breaks alone. And both are part of the bigger picture.
In the end, how you manage your finances is a decision all your own. Whether choosing a car or home loan first, the key is going into it with a plan and looking at both the financial risks and benefits. Take your time during the loan processes, don’t hesitate to ask questions, and do your research on rates and special offers. You’ve got this, and congratulations on your upcoming purchase.