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What to do
My husband and I are looking for some help. We would like to buy a house early next year. We currently have 500 in savings now. We had some things come up that made us take away from our savings 
We will have $3000 coming from our tax refund. DH's car has approx $3000 left to pay. I'm wondering if we should save that money or use it to pay off his car.
If we pay the minimum 220, it will be paid off in just over a year. We would be saving 800 per month until then.
If we save 2000 and put 1000 down on his car now and pay 400 extra (and save only 400 instead) each month, it would be paid off August 2013. Then we would start saving 1020 starting in September.
If we pay his car off (put 0 in savings), it will be paid off April 2013. We could then start saving 1020 starting in May.
Re: What to do
I'd say just pay off the car and then start saving, since your interest is almost certainly higher on the car loan than in your savings.
However, if you're uncomfortable with only having $500 (if that's your E-fund, too), I'd put $500 in there in April, put the other $2500 toward the car, then in May pay off the loan and save approx $720; then you can go to $1020 starting in June.
"You know you're in love when you don't want to fall asleep because reality is finally better than your dreams." - Dr. SeussYou need bare minimum 10% down for your house, preferably 20% down plus closing costs. For a $100,000 home you are looking at $10,000-20,000 plus about 5k fro closing costs. I assume a house you buy may cost more so go up from there.
you also need a minimum of 3 mo emergency savings of income, preferably 6.
You are not ready to buy until the above are met.
In your case I'd put part of the tax refund on the car and start a savings with rest.
Hopefully in the next 2-3 years you will have enough saved to be ready to think about a house. good luck
Back to your original question...unless the car loan has zero interest, I would pay it off. For me, the satisfaction of having the loan paid off would make me want to save even harder.
100k was used as an example to make the numbers easy. I live in lcol place too but my home cost considerably more than that to live in a nice kid friendly area.
zero down with no savings is a horrible idea and basically makes you 1 or 2 paychecks away from bankruptcy. thats how the housing/mortgage crisis happened. from people buying too much or being unable to afford their home. If your AC breaks you are looking at several thousand. your roof? 10k
We always spend a few hundred dollars just trying to get the house in order- and if you're going into this w/ only $500 in savings? To close for comfort for me.
~Benjamin Franklin
DS dx with celiac disease 5/28/10
Just because many people buy homes with little to nothing down, doesn't make it a sound financial decision.
Any financial advisor or planner who is worth his/her salt will tell you to save 10-25% for your down payment, have money for closing costs, and a stable E-Fund before buying a home. Plain and simple, this is just wise. Anything else is doable, but foolish.
Here's why a DP is so good.
1. It makes you more favorable to lenders - therefore you can get a better rate, which will save you more money over time (litterally tens of thousands of dollars). Lenders feel more secure giving money to people who have decided to personally invest in their home.
2. Using made up numbers, let's say you buy a home for $100k. You put $0 down. You have a rate of 5%. In five years you want to refinance to get a lower rate. Because you have zero equity in your home, no lender will refi your loan. You are stuck at 5%.
3. Again, made up numbers, $100k home. $0 down. You have to sell your home due to a significant life change. You owe around $100k, but the home's value has fallen to $85k (it can happen). Now you are upside down on your mortgage. You cannot sell and are stuck in the home. No buyer will give you $100k for your house when it's worth $85k.
4. Made up numbers: $100k home. 0% down. On many loans you will have to pay mortgage insurance which can amount to several hundred dollars per year. It doesn't sound like a lot, but a few hundred dollars per years is a bunch of gas, groceries, etc.
These are the prudent reasons to save up before buying. Plus, you have all the other reasons PPs mentioned.
so that is where you differ from the OP. she only has $500 in savings.
I would save it. Then use any extra you have in your monthly budget to pay off the car sooner. Reason being if you have a paid off car and no savings when an unexpected expense comes up you go into debt to pay for the expense. If you put the 3000 in savings and use the 1020 to pay on the car each month you only have three months till the car is paid off. Then you have a paid for car and 3000 in the bank while keeping that savings cushion.
If the car is at a very low interest rate I would just pay the minimum payment and put the rest toward savings.