A financial compromise

Question: I'm looking to buy a car now but at the same time looking to buying a house in the future. I have the money to buy the car outright, but I have little to no credit history. I wanted to know if my best bet is to get a loan to build my credit score and save the money for a down payment on a house in the future? Or buy the car outright and go with a first time home owners loan with little to no money down? Michelle, Delano, MN

Answer: How about a financial compromise? What about a large down payment on the car and take out a small loan to pay for the rest? This way the monthly bill will be manageable, the interest rate on the loan will be low, and you'll build up your credit history by paying the auto tab off on time. Better yet, you won't drain your savings.

That said, I want to emphasize for you to make sure that buying a home really works for you financially. I don't think owning is a mistake and the housing market is increasingly attractive. A home is a lifestyle. What you don't want to do is stretch your finances to own. The real lesson of the past few years is to keep household finances conservative.

Here are my principle guidelines to weighing the costs and benefits of homeownership:

*Compare the cost of owning vs. renting.
*Buy only if the deal is financially conservative
*Keep the financing simple
*Smaller is both smart and socially sustainable

A home can make for a wonderful lifestyle if financed with a margin of safety. It's potentially disastrous for anyone that stretches their finances to own.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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