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StartingOver10
Posts: 3,981
Registered: ‎03-06-2010
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Re: Critical life moment -- Need good advice on Auto Loan

[ Edited ]

Toat wrote:

I live very frugally, my other expenses are low.  I have been putting ~1500/month in saving prior to this. I will put 10% down on the car (to bring it down to 20k on the loan).

 

I am not exactly sure when I want to buy a house, I'm not currently married. But it's possible it could be within the 5 year window. Will having a large auto loan impact my ability to buy a house if I do go down that road sooner?

 

 


Yes it will reduce the amount of the mortgage for which you qualify.

When you apply for a mortgage there are two ratios that are critical: front end ratio which is your housing expense for the new purchase (pricipal, interest, taxes, insurance, mortgage insurance and HOA - if applicable); and, the back end ratio which includes all the items in the front end ratio plus your installment loans and cc payments and student loans.

 

If your back end ratio is too high, then the size of your mortgage is reduced until you qualify.  It is very common for an auto loan to be the payment that reduces the amount you can borrow.

 

Max front end ratio for FHA (for example) is 44.99% of your gross. The back end maximum ratio is 56.99% HOWEVER, the maximum ratios can be reduced by individual lender overlays.

 

For conventional loans, the ratios are less.

Just food for thought.

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Dustink
Posts: 2,980
Registered: ‎10-02-2012
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Re: Critical life moment -- Need good advice on Auto Loan

[ Edited ]

I would recommend you get a 5 year old Impreza for under $10k. Or a 10 year old low mile AWD Audi or Infiniti for under $10k.

 

Basic maintence and repairs and you will still have good long term vehicles.

Too many INQs & low AAoA so I'm off to tend the Garden.     Age:21    


     $14k          $8.5K          $7.5k          $7.5k         $6.5k             $6k             $5k            $5k             $5k              $5k           NPSL       @ 0%
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Toat
Posts: 8
Registered: ‎10-04-2013
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Re: Critical life moment -- Need good advice on Auto Loan

How bad would it be if I ignore this advice and get what I want?

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Dustink
Posts: 2,980
Registered: ‎10-02-2012
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Re: Critical life moment -- Need good advice on Auto Loan


Toat wrote:

How bad would it be if I ignore this advice and get what I want?


When I was under 18 I bought cars with cash, but as soon as I turned 18 I was into nicer vehicles. I bought a $16k Impreza when I was 18 and at 21 I bought a $25k+ Legacy. So...do what you want as long as you can afford it. Just don't let it sacrafice your savings. Maintain a minimum of 10% per month towards savings. More is better.

 

If I had put that $40+k that I have been spending towards investments instead of worthless assets. I would have a lot more for retirement. Auto's are generally bad buys no matter what. 

 

Will this be your first car? What do you own now? 

 

Do you have a large down payment to maintain equity through the life of the loan?

 

An auto loan will significantly reduce your pre-qual amount on  home loan. Be sure to pay off the auto before getting the home. Or get the home, then the auto.

 

 

 

Too many INQs & low AAoA so I'm off to tend the Garden.     Age:21    


     $14k          $8.5K          $7.5k          $7.5k         $6.5k             $6k             $5k            $5k             $5k              $5k           NPSL       @ 0%
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aspen12777
Posts: 21
Registered: ‎09-03-2013
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Re: Critical life moment -- Need good advice on Auto Loan

 

It depends at how you look at it. Are you getting the car you need or you want.

 

Going on a Vacation is not a good investment or a good financial decision, but it you want it and it improves you happiness then do it. Its your money.

 

Cars seem to be that item where people need to talk themselves into " It made more sense to spend more, I will save more in the long run" I have not seen to be the case.

 

I go to concerts, baseball games and lot of other things I don't need. Some people its cars, it depends on what yours is.

 

If you are looking for the most bang for your buck, I stand with a used car in the 6-8K range that they made a ton of, so you can find parts and your local mechanic can fix it.

 

If you want the car and you have the money to spend and it brings you happiness I say go for it.

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Toat
Posts: 8
Registered: ‎10-04-2013
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Re: Critical life moment -- Need good advice on Auto Loan

[ Edited ]

(I can't figure out how to quote on these forums)

"""""When I was under 18 I bought cars with cash, but as soon as I turned 18 I was into nicer vehicles. I bought a $16k Impreza when I was 18 and at 21 I bought a $25k+ Legacy. So...do what you want as long as you can afford it. Just don't let it sacrafice your savings. Maintain a minimum of 10% per month towards savings. More is better.

 

If I had put that $40+k that I have been spending towards investments instead of worthless assets. I would have a lot more for retirement. Auto's are generally bad buys no matter what.

 

Will this be your first car? What do you own now?

 

Do you have a large down payment to maintain equity through the life of the loan?

 

An auto loan will significantly reduce your pre-qual amount on  home loan. Be sure to pay off the auto before getting the home. Or get the home, then the auto."""""

 

 

It is my first car loan. I currently own a '98 honda accord which does horrible in the snow. I have to put 10% down per the terms of my lease. If I were to do 48 months loan and pay around $500 per month I could still easily put over $1000 in savings each month. I'm pretty sure I'm ok with not buying a house for 4 years, given I'm currently single and need to get a wife lined up. Would I be stupid to spend so much a month for something I'd probably just sell as soon as it's paid off?

Community Leader
Senior Contributor
StartingOver10
Posts: 3,981
Registered: ‎03-06-2010
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Re: Critical life moment -- Need good advice on Auto Loan


Toat wrote:

(I can't figure out how to quote on these forums)

"""""When I was under 18 I bought cars with cash, but as soon as I turned 18 I was into nicer vehicles. I bought a $16k Impreza when I was 18 and at 21 I bought a $25k+ Legacy. So...do what you want as long as you can afford it. Just don't let it sacrafice your savings. Maintain a minimum of 10% per month towards savings. More is better.

 

If I had put that $40+k that I have been spending towards investments instead of worthless assets. I would have a lot more for retirement. Auto's are generally bad buys no matter what.

 

Will this be your first car? What do you own now?

 

Do you have a large down payment to maintain equity through the life of the loan?

 

An auto loan will significantly reduce your pre-qual amount on  home loan. Be sure to pay off the auto before getting the home. Or get the home, then the auto."""""

 

 

It is my first car loan. I currently own a '98 honda accord which does horrible in the snow. I have to put 10% down per the terms of my lease. If I were to do 48 months loan and pay around $500 per month I could still easily put over $1000 in savings each month. I'm pretty sure I'm ok with not buying a house for 4 years, given I'm currently single and need to get a wife lined up. Would I be stupid to spend so much a month for something I'd probably just sell as soon as it's paid off?


You have conflicting statements in your post. Are you leasing it or buying it?

 

If you are leasing it, then you don't own it. You turn it in at the end of the lease OR you buy it out for extra money. If you turn it in at the end of the lease you still will owe for milage and condition. Most of the time the lease is set up so that the annual milage is low (12k or so) and the condition has to be perfect when you turn it in. They will always find something wrong. Read up on what the costs will be to you at the end of the lease.

 

If you are going in the direction of wanting to do what you want to do anyway - at least buy the vehicle rather than lease it. Leasing is one of the worst things you can do -  all you have is an expense (liability) and no asset to sell at the end.


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