Student loan or mortgage?

[steveclank]

Hello,

I'm trying to determine if I should pay off my student loan or use the money for downpayment? I currently have students loans worth $35,000 at 6.8%. I'm looking to purchase a house for $200,000 at 4.8%. I have $40,000 to use.

Should I put the $40,000 down on the house so I can avoid paying PMI(about .66% amonth) and reduce my overal loan to $160,000

or

Should I pay off my entire student loan and only put 5% down on the mortgage to make my mortgage $190,000 a month plus .66% PMI.

Which sounds better?

[JoshuaHeckathorn]

What kind of EF do you have? If you feel you have a secure job/income and an adequate EF, I would put 20% down on the house and then focus on paying off my student loans next. Others will probably disagree, but I think it's a great time to buy a home in many parts of the country. If you found a place you love at a great price, I would say go for it.

[Hector]

If I were you, I would pay down student loan at 6.8% first. Then I would save enough for 20% down payment before start looking houses to buy.

[steveclank]

My EF so far would only cover the next 3 month's expenses. I just got a promotion, so the new checks are just starting to come in. I feel very secure at my job.

My initial reaction is to get out of the PMI, but I always hear about paying off the higher interest first.

I found a couple of "perfect" houses, but they do require a little fixing up. I'm not in a huge hurry, but if I find the absolute perfect place, I don't want it to be gone by the time I am ready.

[Hector]

I dont know anything about taking mortgage and about houses, but I heard that one should never fall in love with a house while looking for one and one should definitely not rush towards it. You mentioned that you have 3 months of EF. People often talk about extra expenses associated with having house. I hope you already account for it in your EF and/or in short term expenses.

[happygirl]

I'm rather conservative so for me 3 months in an EF would not be enough regardless of how secure your job is. There is always the possibility of becoming ill or being hurt etc. I would want at least 6 months before I would pay down the student loan or put a down payment on a new home.

In most cases, there are expenses above and beyond what you might plan for when purchasing a home. And it never really ends. There will always be things that you didn't expect or you decide you really want/need, so having money put back for home ownership is a good idea.

Assuming those things were taken care of, I'd be inclined to use the money for a down payment, then pour any extra into paying off the student loans. I just can't stand the idea of PMI.

[steveclank]

That does make financial sense, but while I'm not in a major hurry, I would like to move by summer 2012. I don't think I would be able to save $40,000 by then. I'm making more than enough to cover the mortgage plus expenses. Decisions-decisions.

Originally Posted by Hector

If I were you, I would pay down student loan at 6.8% first. Then I would save enough for 20% down payment before start looking houses to buy.

[MonkeyMama]

Personally, I'd pay off the student loans (maybe not all at the moment - you would need some savings too). Then I'd save 20% down for a home.

"Perfect places" will always be there.

For reference, just about everyone I know is/has been in foreclosure. I don't see what the rush is.

If you are in your 20s (young), then putting 20% down on a home and then attacking the student loans may be reasonable. The flip side of that is, what's the rush? The attitude of "I have to do it now even though I am not ready" is ALWAYS a bad sign.

[JoshuaHeckathorn]

Originally Posted by steveclank

My EF so far would only cover the next 3 month's expenses.

Hmmm...your EF is pretty thin. I would get it to at least 6 months before moving forward with the home purchase.

[couchrobt]

A little stretch would not hurt correct? Wait a few more months and then you can finally start on with the home purchase.

[jerrycates]

Who would not want to get a home? Every one of us wanted to have one. But sometimes the timing may be off. In this thread I think it is best to think things over.. much more. Talk to financial people. They can help you analyze and more.

[Little House]

Have you calculated the added expenses of owning a home? Repairs (always, repairs!), taxes, insurance? I'd sit down and crunch some numbers on the extra costs of owning a home. Then, decide if you could easily pay the mortgage <em>and</em> pay down your student loans while saving a little bit more for more home repairs. If it would be a tight squeeze, then you might want to pay down your student loans a bit more and wait on owning a home.

I'm not a psychic, but I did foresee the housing bubble and I think that home prices will stagnate for a couple more years. Interest rates are low now, so just keep your eyes peeled for when they begin to creep up.

[clintdavis]

Hi Steve,

I would definitely advise paying off your debt first. I have seen way too many people rush into buying a house, before paying off their debts, and it can put you in a bad situation. I would rent as cheap as possible,work hard, sacrifice, and get the student loans paid off as fast as possible. Then, I would continue to live frugal and save up enough to make a 10-20% down payment on a house.

Renting is not necessarily a bad thing or waste of money, when it is a part of a plan to accomplish your overall financial goals.

And when you are ready to purchase a home...remember...the goal is not to "buy" a home, and just make payments forever. That's just a bank owning a home and letting you live there. The goal is to own a home.

Thanks for sharing.

[Frugal]

This is just my opinion (I am not a professional), but as someone who myself has student debts and a mortgage, I would try to pay down the student loans with that interest rate first. I never had rates as high as you have on student loans. I had in the 4.5-5.8% range, and maybe once had one with 6% or so. It is a nice feeling to have paid down your student loans, before you take on other debt. Hope that helps!

[Michael01]

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[Bardolf]

Hi,
Every one of us wanted to have one.But sometimes the timing may be off. In this thread, i think it is best to think things over,much more.I'll suggest you talk to financial people. They can help you.

[jerrycates]

Weigh things over. Best if you can talk to a professional to get a more definite reason before you make your next move. It would not hurt to ask.