New Car or New Home

If you're considering buying a home anytime in the future, please think twice before purchasing your next car because a car payment can really impact the purchasing power for buyers. Here's how it impacts your purchasing power based on a mortgage with a 6% interest rate amortized for 30 years:

• Car payment $400 = $66,700 of home
• Car payment $500 = $83,395 of home
• Car payment $600 = $100,075 of home

You need to decide which is more important to you: a car with a $600 payment or being able to buy $100,000 more of a home.  The lower your income, the more dramatic the car payment (or any debt) impacts you.  

In addition, when you finance that nice new car, your credit score is significantly zapped.  This is because it's a new debt and financed at 100% of the new credit limit.  Credit scoring modules favor old established over new credit and you're dinged again for having balances over 50% of the total credit limit (the same holds true for credit cards).

There's nothing quite like that new car smell, but there's also nothing like "home sweet home."