Many young people after graduating from university/college and getting a full time job tend to buy one of the biggest investments of their life: a new car or a first home, or maybe both? The question we often hear from first time home buyer is, “should I buy a new car first or buy a home first?”
Let’s look at the blueprint for financing a car vs financing a home.
An average income for a couple in British Columbia is $80,000 gross before tax according to Statistics Canada. That will qualify you for an approximate maximum mortgage amount of $472,000. Here’s how:
- 5% down-payment
- 2.89% fixed rate
- 5 year term
- 25 year amortization
- $200 other monthly expense
Financing $30,000 vehicle will add an additional $500 monthly payment. This will drastically affect your mortgage qualification. It’s not what you owe, but what you pay that counts. Your mortgage amount will decrease from $472,000 to $364,000 approximately.
Yes, that’s right, the difference is $108,000 just by financing a new car before taking out the mortgage. So the message is clear – don’t put the car before the house.