Personal Finance

Want To Buy A House? Don’t Buy A New Car

want to buy a house

Do you want to buy a house? You probably do as that is part of the American Dream. However, there is a move that many Americans make that stops them from buying a house: Buying a new car. How so? Continue reading to find out.

Let’s Review The Various Costs Of A New Car

New Car Prices

Let’s see the average cost of a new light-duty vehicle/passenger car in America today. According to data released from Kelly Blue Book in mid-2020 the average transaction price of a new car from several manufacturers is nearly $30,000. Reviewing the chart in their article the “lowest” price was from American Honda at $29,166.

Finally, let’s review the most popular cars in America. According to Edmunds, the best-selling cars are pickup trucks, SUVs, and mid-size sedans. When I go back to the Kelly Blue Book data from the link above, here’s the average price for those car types:

  • Mid-size Pickup Truck: $37,294
  • Subcompact SUV/Crossover: $25,094
  • Mid-size SUV/Crossover: $40,703
  • Mid-size Car: $26,562

Average New Car Down-Payment

According to data complied by Edmunds the average new and used car down-payment in 2019 was 11.7%. That’s below the 20% down-payment various financial experts suggest.

The data for 2020 I suspect will be lower because Covid-19 hurt many car dealerships. Thus, they offered no to low down-payments. And many car manufacturers had incentives, such as no payments for X months or they would make the first X number of car payments for you.

Various Monthly New Car Costs

Now we have some numbers let’s break down how a new car payment prevents a person from buying a house.

The average new car payment in America varies depending on the report. Nerdwallet states it’s $530 while CreditKarma states it’s $568. If you want to see the breakdown by state, CNBC has a map of one. The median between these numbers is 549. To make the math simpler I’m going to use $550 as the average monthly new car payment.

That car needs full-coverage insurance coverage due to the car loan requirements, and the monthly cost of that is going to vary. ValuePenguin has an extensive breakdown about the average of car insurance. Using the figures for full-coverage the average monthly cost is about $204.

Next we have to add in the costs of gasoline. ValuePenguin reports that 90% of Americans report spending money on gasoline to the tune of $3000 a year. That’s $250 a month.

Finally, we have to figure in car maintenance. While the warranty usually covers other problems with new cars they still need periodic oil changes and tire rotation. Oil changes range from $25 to $50 while tire rotation ranges from $35 to $45 in my research. Most cars need both services done starting at 5,000 miles today. The average annual miles an American drives today is around 15,000. Using that info the average new car will need this service 3 times a year. Taking the median of both ranges I get $77.50. Multiplying that by 3 the total is $232.50. The average monthly cost is $19.38.

The Final Total

It’s time to sum up the monthly numbers and get the final total:

  • Car payment: $550
  • Car insurance: $204
  • Gasoline: $250
  • Maintenance: $19.38

Total: $1023.38

How A New Car Payment Keeps You From Buying A House

If you want to buy a house then you need a down-payment. A conventional loan usually requires 3% minimum down while a FHA loan requires 3.5% down. Where can you get the money to save for that down-payment? If you don’t have a new car payment.

If the average American took the average monthly cost of $1023.38 and saved it for 12 months he or she would have $12,280.56. That’s a sizable house down-payment.

Even if the average American can only save half that amount, the 12 month total would be $6140.28. Depending where you live in America and the cost of a house, that amount could be a good down-payment.

In the end, this is how buying a new car can stop a person from buying a house. If you want to buy a house and you need a car, I highly suggest you buy an used one that’s under $10,000. Finally, if you can pay cash for a car that’s great but I know that’s hard for many people to do.

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Naomi Lane
4 months ago

You are absolutely right Brittany. I have never owned a new car in my life and I am a retired person. I have never even made payments on a car to a dealership. Get the lowest interest loan you can from a bank, or better yet, save up for a used car. Then you stand a chance of being able to save a down payment for a home.

David Rugge
David Rugge
4 months ago

The cost of gasoline per month seems very high. Unless you’re driving a big, inefficient vehicle you should only have to fill up at most once per week unless you have an insane commute (which could be the topic of another article).

Once per week @ 2.50/gallon for 10 gallons is about $100-$125/month for gas. Driving an efficient compact car like a Honda Fit or Prius cuts this to about $50-$75/month.

Otherwise, I think you’ve nailed it – cars are a big cash sink, so buy used.