How long do you have to wait between a car and home purchase?

Answer 1

The time required is based largely on (1) how much you have in savings for down payments and (2) how much you can afford to pay per month.

If you are financing the car, the rule of thumb is to wait between one (1) and two (2) years in order to show your good progress with the auto loan.

An alternative rule of thumb is to be sure that your total debt service (how much you pay per month across all of your debts) is no more than 34% to 36% of your gross income (including existing and planned auto payments, credit card payments for balances carried, planned mortgage payments, assessments and property tax payments).

The mortgage, assessments and property tax payments should not be more than 25% of your gross income.

So, if you make $45,000 per year and you have no credit card debt and you decide to buy a new car for $30,000 for which you are putting down $8,000 (and financing $22,000 at 4% over 5 years), your auto payment will be approximately $405 per month.

$405 per month when making $3,750 per month ($45,000 per year as a monthly value) means that the auto payment represents approximately 11% of your income, leaving you with 23% that you could spend on your home (on the conservative side). Since 23% is less than 25%, so 23% is the amount that we can use.

At 23%, assuming that your property taxes would be 2% of the value of your home and your assessments would be $100 per month, you can afford to buy a home for $133,300 when putting down 20% ($26,660).