[torifile]

I'm driving a '95 Pathfinder that's probably got about 1 year or so left on it. Kelley Blue Book trade in value is about $2750. The car needs its brakes fixed. Not URGENTLY but if I were to keep it, I'd want to have decent brakes. This brake problem isn't something as simple as new pads. It's at best needing a new master cylinder, at worst something more extensive (I've spent hundreds of $$ and a whole lot of time over the past 2 years trying to get it fixed :/) Here's my question:

If I can get about $2000-2500 or so for the P'finder in a trade, should I do it or should I drive the car into the ground and then buy? I'm looking at a Mazda3 or 6 (relatively inexpensive as far as cars go).

There is a complicating factor and my wife and I are in slight disagreement about it. We want to buy a house in about 6 months. I'm of the opinion that we should buy the car now so that we aren't pressed into buying a car possibly right around the same time as buying the house. She thinks we should wait on the car until my current one dies.

Personally, I think if we can get a decent trade-in price plus a reasonably low rate (1.9% is what the dealer is offering - my credit is good), I should go for the car now to give us a chance to save up money again for the house. I think that driving it for another 6-12 months and costing me the ~$2500 for the trade + the brake job isn't worth it. I was planning on putting a couple thousand down + the trade. What do you guys think?

Thanks in advance.

[Koodari]

Real costs of having a car:
- Gas
- Repairs
- Your own time spent in car maintenance
- Transport while car is getting fixed
- If you took a loan: you pay interest
- If you didn't: you lose interest you would have gotten from a car-size investment
- Car depreciation - resale price drops constantly

I can't say I know anything about the specifics of car sales in your area, but this is how it goes with cars if you're looking to save money:

- All costs factored in, NO car is often cheaper than car: public transport and taxis can be surprisingly cheap.
- Never buy a new car, buy them five years used. The car has done much of its depreciation in that time, is not yet very prone to problems, and the interest is correspondingly smaller.
- An old car you have now is often cheaper than a new car. You generally lose in trades - if you didn't, why would they want to sell you the car.
- Important exception: you drive a lot, and are switching from a gasguzzler to an economical car. However the car still needs to be reasonably priced so the capital costs don't overwhelm the gas savings.
- Buy the smallest, cheapest car that is acceptable to you.
- If you have a bit more budget for the initial buy, and there are lots of cars to choose, pick the one with the best reliability ratings - this is key for keeping the costs down. Often the ones that are built well have both good reliability and good crash safety. Personally I have my eyes set on Hondas and Subarus because of these factors. Anyway, read up and see for yourself.

If you manage your money right, it makes no difference if you buy a car, a house, whatever, and what is the exact time schedule. Just try to stay out of debt as well as possible, and if you have to go into debt keep interest rates low.

[Trumpetman]

There is a complicating factor and my wife and I are in slight disagreement about it. We want to buy a house in about 6 months. I'm of the opinion that we should buy the car now so that we aren't pressed into buying a car possibly right around the same time as buying the house. She thinks we should wait on the car until my current one dies.

If you are going to be buying a house the number one thing you should NOT do is buy a car right now.

Houses are not just all about credit scores, they are also all about credit ratios or more specifically debt ratios. When originating your mortgage, they will look at your current income and what percentage of it is devoted toward debt service. Any car payment raises your percentage of income going toward servicing debt.

Now after you get the mortgage, well they can't really do anything about it at that point. However until you buy the house, every dollar used to service the car loan is considered one less you can use to pay a mortgage and as a result they will qualify you for less of a mortgage and hence, less of a house.

This is especially important to look at as interest rates are rising.

I would also recommend the advice given in the second post. As much as possible, buy a car used and do not finance it. I can also recommend Hondas. My wife purchased one new (before we were married) and it has 156k miles on it with no major work of any kind. Not even small stuff like alternators or water pumps.

If you really are worried about the long term viability of the Pathfinder let me ask and suggest a couple things to you. First is what is the mileage on it? Any well cared for car engine made in the 90's can go 200k miles. The thinking that 100k is done is left over from all the American junk in the 70's and 80's. A second matter is that if you think the engine is worn out, smoking, rings starting to go, you can have it completely rebuilt for around $1500 or so. A last matter is that sometimes very small changes can help us feel better about an "old" car that good running. If the headliner is drooping, you can buy a replacement liner for $40 and install it for example. Seat covers, floor mats, things of this nature are all cheap upgrades. Heck even buying and spraying some scent can make a difference.

But most importantly DO NOT BUY a car before you buy the house.

There are about a thousand links discussing debt ratio. Pick one.

debt ratio

Additionally I would start reading NOW about the buying of a home. It is the large purchases (homes, cars, etc.) that people screw up on the most because they have the least experience with it. (They might do it three times or so in their entire lifetime for a home) Do yourself a big favor, drop at least $200 on a half a dozen good books about buying a home. Read through everyone of them and you will notice 75% similarity and about 25% difference. By the end of say the third or fourth book you should have some very good but incomplete understandings (and so should she since I assume she will read them as well).

I would then begin independently looking at some houses through an online service. Do this with the wife and start to get a feel for what you both really want. It will help you to sort of unify your expectations and desires for a home. (Sort of hard to do when you are in the house SHE wants or YOU want and must now tell the other why you don't like it after they have already seen and now LOVE it.) Build a check list of what is important to you about your home. If you live in the area in which you are purchasing, you can often start scoping out homes before really buying them just to get a feel for what agents and people do to trick people into thinking a home is nicer than it really happens to be.

Then get into the last couple books while interviewing a buyer's agent. This is the agent that will work for you. Finally go look and buy a home.

The typical cost to originate a loan is around $5000. The typical amount of closing costs is around $5-7000. You aren't even into your downpayment yet. So before you commit a minimum of $10-14k toward your home, invest $200 in books and some time reading. Homes are hard to get into and hard to get out of since the cost of acquisition is so high. (Decide you hate it and want to sell, typical home sell commission is 6% of the SELL PRICE)

Also reading these books will very much get you past the things people do to prep homes and overcome their shortcomings. There is a whole new set of shows on television that spend a couple days and a couple thousand dollars prepping homes to yield gains $20k or more in sales price. You want a home with a good location, good bones, and the right size. Don't buy it because they painted a couple rooms, put some new flowers in the yard or because they laid some vinyl down or because they have the smell of candles or baking sugar cookies.

Nick

[Random Hero]

If you are saying that your Pathfinder needs brakes I would just keep that (if you're happy with it, that is). If you've had the Pathfinder since it was new or for quite a number of years you know the full condition of it, what work has been done, what has been fixed and what hasn't.

As Koodari said in his post, any car you buy, new or used, is subject to mechanical failure and will need servicing periodically throughout its life. You may want to just have a mechanic go over your Pathfinder and tell you about what it needs or what it might need in the future.

Since it is very possible that if you buy a used car (which I still recommend over a new car because it's so much cheaper) You could run into hidden problems down the road that the seller hasn't told you about (In New York they're not obligated to tell you unless you ask about it specifically)

So it may be cheaper overall to just fix your breaks and drive your Pathfinder for a few more years.

[torifile]

After thinking about all this stuff (thanks for the good posts!), I've decided to stick it out with my pathfinder for a while - at least thru the end of the year. We're fortunate in that we should be able to pay for the car outright after about 6 months of saving for it. I figure we buy a home in June and get the car in Dec. or later. My brakes are a complete mystery to anyone who's ever looked at them. 2 master cylinders and over $1200 later, they still don't work right. Damned frustrating. But I just got them adjusted so they stop better - not perfect but ok - and that'll work until the end.

We're going to hit the books this weekend and start looking for good realtors shortly. Wish us luck!

Oh, and what do you think a good down payment is? We're thinking about spending ~$180,000. By June (if nothing terrible comes up) we should have about $30,000 saved up. Some of that is in stocks, some in mutual funds and most in a money market savings account. We'd prefer not to cash in the investments but we'd need to get a pretty good return to make up the interest on $10,000+ that's mortgaged right?

[LoCash]

EXACTLY what trumpetman said. Listen to the guy, torifile

[Trumpetman]

Originally Posted by torifile After thinking about all this stuff (thanks for the good posts!), I've decided to stick it out with my pathfinder for a while - at least thru the end of the year. We're fortunate in that we should be able to pay for the car outright after about 6 months of saving for it. I figure we buy a home in June and get the car in Dec. or later. My brakes are a complete mystery to anyone who's ever looked at them. 2 master cylinders and over $1200 later, they still don't work right. Damned frustrating. But I just got them adjusted so they stop better - not perfect but ok - and that'll work until the end. We're going to hit the books this weekend and start looking for good realtors shortly. Wish us luck! Oh, and what do you think a good down payment is? We're thinking about spending ~$180,000. By June (if nothing terrible comes up) we should have about $30,000 saved up. Some of that is in stocks, some in mutual funds and most in a money market savings account. We'd prefer not to cash in the investments but we'd need to get a pretty good return to make up the interest on $10,000+ that's mortgaged right?

I've heard of situations where certain aftermarket brake pads don't play nice with factory rotors and likewise where aftermarket rotors don't play nice with factory pads. That is about all I can offer up on the car front.

As for the down payment, it is basically up to you. Look online for mortgage calculators and basically play with the numbers. Realize that a good number of them only calculate the principle and interest and you will likely have to still add on the taxes and insurance. The acronym PITI (like the bread) is what most peope talk about when they say house payment. (It could be between $250-400 more than the PI alone depending upon where you live in the country.)

The issue of tapping your investments with regard to a downpayment is a much, much harder question to answer. People have different comfort levels and different goals. I can tell you that I am not a "diversified" person and keep no money in mutual funds. I prefer to put my money to work earning great returns instead of just trying to get a return that stays ahead of inflation. So I really am not too helpful in this area. All my investments are in real estate that is because I very much appreciate, understand and enjoy the power real estate gives you with regard to leverage.

That said, you have to simply weigh the reduced costs of the mortgage vs what the money would likely return if left invested. Is the home you are going to buy going to be a starter home? Do you anticipate keeping it for a very extended period or moving in say 5-7 years like most folks happen to do. When you move do you plan on keeping it and renting it, or do you think you will have saved so little that you will need to sell it to purchase the next house?

Good assets are profoundly powerful, and there is nothing wrong with selling an asset to purchase another asset. However most people think of their home as an asset when it is not. Just try to think about what you will be doing in the future and do your best to plan accordingly.

Good example, loads of people buy a starter house, start their family and then discover the house is too small. This is especially true of say, 1100-1300 sq ft-ish three bedroom homes. However those homes make fantastic rentals later. If you imagine being DINK's for quite a while, I would even recommend a duplex in an upscale neighborhood in which you could maybe even make your living expenses lower than they are now. Later if you decide like most, that the "starter" home is too small, you can invest the money you saved in payments (assuming you didn't spend it) in to that dream larger home that will hold the kids, the office, etc.

A couple other points that wandered into my brain. Summer has the largest inventory but also the most expensive prices of the year as it is when everyone wants to move. Homes can be up to $10k more expensive in the summer. The second point, just to emphasize again, is that a home is not an asset. This is the largest money mistake most people make in their lives. If you think your home in an investment think about what would happen to your mutal funds if you lost your job. Absolutely nothing unless you choose to to touch them. They are an asset. Lose your job and see what can happen to your home. It becomes a boat anchor. Assets ALWAYS put money in your pocket.

Nick

[Majost]

Good stuff...

Immediately upon seeing this thread, I thought about the article I once read by Tom and Ray Magliozzi (Click and Clack from "Car Talk"). They compared the cost of a used vehicle to a new one. I searched for it, but the closest thing I could find was this: http://www.savvy-discounts.com/autom...counts_7_1.htm

In short, a used car saves BIG over a new car... the majority of the depreciation is over and maintenance costs don't turn out to be all that much more than what a new car might be. And, I like running my cars into the ground... I currently own an '86 Honda Accord with 275k on it... and I'm going to transfer the registration from PA to IN, where I don't need inspections. In other words, I'm gonna make this car last as long as I can.

But, I'm trashed (and posting on a Mac Forum... pff), and I have no idea if what I'm saying is coherent. Heheh.