Why Timing Your Car Purchase Is Critical When Looking for a New Home

You’re waiting patiently in your new electric blue beast of a car – the 2018 BMW 3 Series Sedan. Green flashes before your eyes. Your heart races. Adrenaline courses through your veins and you’re off! Needless to say, you’re probably not reflecting on whether you should have purchased this masterpiece of German engineering.

In today’s post, I won’t be trying to convince you not to buy a car. I will, however, be demonstrating why timing your car purchase is critical if you’re in the market for a new home. The importance of timing your car purchase has been further accentuated with the upcoming mortgage stress test.

Assumptions

Let’s first go through some assumptions I’ve made for the following examples. In addition to the BMW 3 Series Sedan, I’ve included the Honda Civic for comparison.

BMW 3 Series Honda Civic
Purchase Price $50,000 $18,450
Payments (per month) $830 $240

Let’s also assume a total monthly food expense of $750 for a 3 person family. Together with the monthly car payments, this makes up the majority of our monthly expenses (one of 6 main drivers for mortgage loan calculations).

Your Affordability

Note that all values are calculated using Ratehub’s mortgage calculator.

Without BMW With BMW
Annual Income $100,000 $100,000
Deposit 20% 20%
Interest Rate 2.79% 2.79%
Qualifying Interest Rate (With Stress Test) 4.99% 4.99%
Mortgage Product 5 Year Fixed 5 Year Fixed
Amortization 30 Years 30 Years
Affordability $578,830 $398,970

Note that purchasing the BMW 3 Series, your affordability drops by almost $178,000. A significant amount if you ask me! But what about the less expensive Honda Civic?

Without Civic With Civic
Annual Income $100,000 $100,000
Deposit 20% 20%
Interest Rate 2.79% 2.79%
Qualifying Interest Rate (With Stress Test) 4.99% 4.99%
Mortgage Product 5 Year Fixed 5 Year Fixed
Amortization 30 Years 30 Years
Affordability $578,830 $526,824

With the Honda Civic, your affordability drops by a little over $52,000. This suggests a linear relationship between the monthly payments and the drop in affordability. Every $200 increase in monthly car payments translates to about $40,000 decrease in affordability.

Main Takeaways

Seeing how a simple car payment could severely limit your affordability, you probably want to either completely buy out your car or wait till you’ve secured a mortgage loan before financing.

Do you have any questions you’d like me to discuss further?

Leave me a comment below!

Ting Chan

Ting Chan is a real estate enthusiast living in Vancouver. He strives to write easy-to-digest, relevant, and timely real estate content for everyone to understand. If you found what you read today useful, please spread the knowledge and subscribe for more!

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