Should I buy a car or house first?
The Short Answer: Buying a house first is usually the smarter financial move.
In most cases, buying a house before a car is the better long-term financial decision. Homes can build equity and potentially increase in value over time, while cars almost always lose value the moment you drive them off the lot.
That said, “usually” isn’t the same as “always.” If you need reliable transportation to keep your job or your income isn’t stable enough to support a mortgage, buying a car first may be the more responsible choice. The right decision depends on your savings, debt, credit profile, and daily needs, which is why the details matter.
Key Takeaways
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How Does Buying a Car vs a House Affect Your Credit and Loan Approval?
How does your credit score impact auto loans and mortgages?
Your credit score affects both, but the stakes are higher with a mortgage.
- Higher score = lower interest rate
- Lower rate = lower monthly payment
- Better score = higher borrowing limit
- A small rate difference on a mortgage can cost (or save) thousands
Auto loans are shorter, but higher rates still add up fast.
Our car affordability calculator and home affordability calculator can help you gauge costs.
Can buying a car hurt your chances of getting a mortgage?
Yes, and sometimes significantly.
- A new car loan adds debt and a monthly payment.
- Lenders count that payment against your debt-to-income ratio (DTI) in mortgage approval.
- Average auto payments are now high enough to reduce borrowing power
- A recent loan inquiry can temporarily lower your credit score
If you’re planning to apply for a mortgage soon, timing matters.
What Is Debt-to-Income (DTI) Ratio and Why Does It Matter?
What does DTI mean for homebuyers?
DTI is the percentage of your income that goes toward debt payments.
Lenders use it to decide:
- How much you can borrow
- Whether you qualify at all
- What interest rate you receive
Higher DTI = higher risk in the lender’s eyes.
How does a new auto loan change your DTI?
Every monthly car payment increases your DTI.
That means:
- You may qualify for a smaller mortgage
- You could receive worse loan terms
- The lender could deny your loan application altogether
Even a “manageable” car payment can reduce home affordability.
Car Payment vs Mortgage Payment: What Costs More Long Term?
What are the real monthly costs of owning a car?
It’s not just the loan payment. Additional costs, though not DTI factors, all impact your budget and how much home you can afford.
Add:
- Insurance
- Fuel
- Maintenance
- Registration
- Parking
Cars also depreciate, meaning they lose value over time.
What are the real monthly costs of owning a home?
Beyond the mortgage payment:
- Property taxes
- Home insurance
- Repairs and maintenance
- Utilities
- HOA fees (if applicable)
Homes require cash reserves. Repairs have a way of not waiting for your finances to improve.
How Do Interest Rates and Market Conditions Change the Decision?
They can.
How do higher interest rates affect car loans and mortgages?
Higher rates mean:
- Bigger monthly payments
- Slower equity growth
- More total interest paid
- Reduced affordability
On cars: less trade-in value equity.
On homes: slower wealth-building.
Do market conditions matter when deciding?
Yes.
For homes:
- Local prices vary widely
- Timing can affect affordability
For cars:
- Popular models may have dealer markups
- Inventory levels impact pricing
Flexibility helps in both markets.
Should You Save for a Down Payment or Finance a Car First?
Why does saving for a down payment improve mortgage options?
A larger down payment can:
- Lower your monthly mortgage payment
- Reduce interest costs
- Help avoid PMI
- Increase approval odds
But don’t ignore high-interest debt to save aggressively.
Balance matters.
The amount you need to save before buying a home depends on several factors, including the down payment, closing costs, moving costs, and early investments, if applicable.
When does buying a car first make sense?
Buying a car first may be smarter if:
- You need transportation to earn income
- Your current vehicle is unreliable
- Public transportation isn’t a realistic option for you
- Homeownership is several years away
Just avoid overbuying. Depreciation is real.
When Is Buying a House First the Smarter Long-Term Move?
If you:
- Have stable income
- Have manageable debt
- Have savings for down payment + emergency fund
- Already have reliable transportation
A home may help build long-term equity and financial stability
What are the risks of buying a car before a house?
- Higher DTI
- Reduced mortgage approval odds
- Worse interest rate on your home loan
- Less monthly flexibility
Timing matters more than most people realize.
How Do You Decide Based on Your Financial Situation?
A step-by-step visual guide to deciding whether buying a car or a house first makes more financial sense.
Questions to ask before buying a car or a house
- Is my job stable?
- Do I have an emergency fund?
- Is my current car reliable?
- How much debt do I already carry?
- Would one loan make me financially stretched?
Be honest. The best tactic is to try to leave emotion out of the decision.
Pro TipFrom our on-staff Certified Financial Educator Just because a lender approves you for a certain loan amount doesn’t mean you should borrow that much. Buying below your maximum budget gives you breathing room for repairs, insurance increases, job changes, and other unexpected expenses. Approval is based on formulas, but affordability is based on real life. Leave yourself flexibility so neither purchase creates long-term financial stress. |
How should this decision align with long-term goals?
Think in 5 to 10-year terms.
- Do you want to build equity?
- Is transportation limiting income?
- Will this purchase increase or reduce stress?
Short-term comfort vs. long-term growth is the real trade-off.
Where to Get More Information Before You Decide
If you’re still weighing whether to buy a car or a house first, the best next step is to get clarity and make decisions based on real numbers.
Use the resources below to research your options, compare providers, and run realistic numbers before committing to either loan.
Learn More About the Financial Tradeoffs
Use educational resources to understand how debt, credit, and loan structures affect your decision.
- How Much Money Should I Save Before Buying a House?
- How Much Car Can I Afford?
- When Should I Refinance – Anything?
- 6 Common Budgeting Mistakes to Avoid
- 9 Real-Life Factors to Consider When Borrowing Money
Compare Trusted Loan and Mortgage Providers
Before applying, review lender options to understand rates, requirements, and approval criteria.
- Best Mortgage Providers
- Best Home Equity Loan Providers
- Best Used Auto Loans
- Best Auto Refinancing Companies
- Best and Cheapest Home Insurance Companies
- Best Debt Consolidation Providers
- Best Personal Loans
Run the Numbers With Budget and Loan Calculators
Numbers reduce emotion and reveal risk. Model both scenarios before you commit.
- Personal Loan Calculator
- Debt Consolidation Calculator
- Home Equity Loan Calculator
- Mortgage Payoff Calculator
- Early Loan Payoff Calculator
- Debt Snowball Budget Calculator
- Monthly Budget Calculator
- Auto Loan Early Payoff Calculator
- Auto Loan Refinance Calculator
- How Much Home Can I Afford Calculator
- Car Affordability Calculator
- Savings Interest Rate Calculator
- Cash-Out Mortgage Refinance Calculator
- Net Worth Calculator
- Student Loan Early Payoff Calculator
