New, advice on my debt situation please

[Kukri]

Hello all, I have been lurking around here a bit and am learning a load about what I should be doing better. I do, however, have some questions about my current situation. I am 26 and recently got married in October. We have started looking at houses lately and I am trying to keep around the $150k range, but the amount of house we can get for $180k around here makes it really enticing. Here is our financial situation:

Wife:
$75k student loan debt, payment of $900/mo (6 or 7 loans, most around 6%)
$55k gross yearly income (plus a little for student loan reimbursement and massages on the side, but we can ignore that for now)

Myself:
$35k student loan debt, payment of $400/mo (3 totaling 11k at 9.25%, 2 totaling 9k at 2.625%, the rest is 5 loans at 6.8% or lower)
$70-95k gross yearly income (normally around $85k)

Our current rent for an apartment is $625/mo, the rest of the utilities should be relatively similar when we get a house so I won't count those. I recently spent 7k to finish paying off my car because I did not want to have an additional $450/mo payment when we start having a larger housing payment.

We are trying to save up 20% down for a house, but it is taking a while and I don't want to miss out on the great rates and low home prices right now. Also, I know I should pay off the student loans before getting into any more debt, but I really don't like living in an apartment much and we'd like a place to call our own. I understand we don't need a house, but we sure do want one.

Are we in a situation to buy a house now, or do we really need to pay off all $110k of student loan debt before jumping into a mortgage? We don't have any credit cards, both our cars are in good shape, both in good health, good job security, and generally good with our spending habits. I plan to stay in this house for at least 10 years and hope to be completely debt free within that time. Any advice you can offer is appreciated, thank you.

[Hector]

Do you have EF?

I personally would save 20% for down payment before taking mortgage. Doesn’t matter how long does it take, I think one should save that much even if you are not planning to put less then 20% in down payment. The idea of down payment is that it is unlikely that you will be under water even though prices fall. Life is unpredictable and things happen. If you are underwater and don’t have enough money saved to come up with it, you wont able to sell house if you need to. Seems like you have large income for your expenses and saving 20% wont take that long.

Interest rate on student loan is high. I would pay if off before taking mortgage.

You are not going to miss great rate. Right time to get into primary residence is the time when you can afford and not when you think prices are the lowest.

[LivingAlmostLarge]

How long to save $40k for the 20% DP and closing costs? What does your budget look like?

[Kukri]

Originally Posted by Hector

Do you have EF?

Interest rate on student loan is high. I would pay if off before taking mortgage.

We don't actively save for an EF, just keep expenses low and it makes itself. We're down to 17k after paying off car and honeymoon to Alaska (totally worth it!), and currently increasing by around 3-4k/month. That was another question I wanted to ask, where should we put this downpayment money while we're saving? It seems like a waste to have it sitting in checking...

I had toyed around with the idea of, at the very least, paying off my 11k loans that are at 9.25% and waiting for the rest until we get the house.

Thanks for the response!

[bjl584]

Originally Posted by Kukri

Hello all, I have been lurking around here a bit and am learning a load about what I should be doing better. I do, however, have some questions about my current situation. I am 26 and recently got married in October. We have started looking at houses lately and I am trying to keep around the $150k range, but the amount of house we can get for $180k around here makes it really enticing. Here is our financial situation:

Wife:
$75k student loan debt, payment of $900/mo (6 or 7 loans, most around 6%)
$55k gross yearly income (plus a little for student loan reimbursement and massages on the side, but we can ignore that for now)

Myself:
$35k student loan debt, payment of $400/mo (3 totaling 11k at 9.25%, 2 totaling 9k at 2.625%, the rest is 5 loans at 6.8% or lower)
$70-95k gross yearly income (normally around $85k)

Our current rent for an apartment is $625/mo, the rest of the utilities should be relatively similar when we get a house so I won't count those. I recently spent 7k to finish paying off my car because I did not want to have an additional $450/mo payment when we start having a larger housing payment.

We are trying to save up 20% down for a house, but it is taking a while and I don't want to miss out on the great rates and low home prices right now. Also, I know I should pay off the student loans before getting into any more debt, but I really don't like living in an apartment much and we'd like a place to call our own. I understand we don't need a house, but we sure do want one.

Are we in a situation to buy a house now, or do we really need to pay off all $110k of student loan debt before jumping into a mortgage? We don't have any credit cards, both our cars are in good shape, both in good health, good job security, and generally good with our spending habits. I plan to stay in this house for at least 10 years and hope to be completely debt free within that time. Any advice you can offer is appreciated, thank you.

Your combined income is high (140K) and you want a house around the 150K range. Totally doable with your income.

With that being said, you should have no problem saving up the 30K that represents your 20% down payment AND saving up a 6 month emergency fund. I would continue to live in your apartment until you have those two things saved up. Remeber, owning a home is not like renting. You will be faced with new taxes and there is no landlord to call when something breaks.

A good place to keep your downpayment money is a high yield savings account. You won't get much better than 1% or so with today's rates, but it's better than your checking account. And, you will have immediate access to your money.

[Petunia 100]

Originally Posted by Hector

I personally would save 20% for down payment before taking mortgage. Doesn’t matter how long does it take, I think one should save that much even if you are not planning to put less then 20% in down payment. The idea of down payment is that it is unlikely that you will be under water even though prices fall.

I used to think that, too. Now I'm at 152% LTV even with 20% + closing down.

Kukri, do you have the ability to consolidate your student loans at today's low rates? If so, do it.

You and your wife are young, are children in your future? I suggest you make certain that your family can get by on only one income, including mortgage, student loan payments, and everything else. You may never need or want to get by on only one income, but just in case, its great to know that you can ride out income disruptions. Arrange all of your finances with that in mind.

[JoshuaHeckathorn]

While I don't think it's absolutely necessary to pay off all your student loans before getting a mortgage, I do think it's necessary to have at least a 6-month EF and your 20% down payment saved up and safe in a high-yield online savings account. If you're saving $3-$4K per month, you should be able to get there relatively fast.

Have you started looking into where both of your FICO scores currently are as well? You mention that you don't use any credit cards, although you have had student loans and auto loans. Your FICO scores are going to play a huge role in the type of financing you can get, so make sure you know exactly where you stand before speaking with potential lenders.

[Hector]

Originally Posted by Petunia 100

I used to think that, too. Now I'm at 152% LTV even with 20% + closing down.

thats awful!

[Hector]

Originally Posted by JoshuaHeckathorn

While I don't think it's absolutely necessary to pay off all your student loans before getting a mortgage, I do think it's necessary to have at least a 6-month EF and your 20% down payment saved up and safe in a high-yield online savings account. If you're saving $3-$4K per month, you should be able to get there relatively fast.

Have you started looking into where both of your FICO scores currently are as well? You mention that you don't use any credit cards, although you have had student loans and auto loans. Your FICO scores are going to play a huge role in the type of financing you can get, so make sure you know exactly where you stand before speaking with potential lenders.

He is looking to buy a house whose value is around their yearly gross income. At their current savings rate, they would have enough cash to buy house in 3-4 years!

Most people don't mind taking another debt while they are already in debt. I don't believe in it. If I was in his situation, I would
1. save for 3 months of EF
2. pay off student loans
3. build 6 months of EF
4. start saving for retirement
5. save for 20% down payment
and then buy house

[Goldy]

I think you need save for another 12 months before you look at buying. 12 months will give you an additional 36k in savings brining you up to 53k assuming you save 3k a month. I would strongly suggests you pay off those 9.25% loans first which would give you ~42k for your EF and 30k for your DP. If you are able to save 4k a month like you said you might be able to do you could start looking at those 180k houses.

You are close but be patient. See if you can consolidate some of those loans as that might help you considerably.

[Kukri]

Originally Posted by bjl584

A good place to keep your downpayment money is a high yield savings account. You won't get much better than 1% or so with today's rates, but it's better than your checking account. And, you will have immediate access to your money.

Any suggestions? I think my current bank offers something around 0.02% or something equally useless...

Originally Posted by Petunia 100

Kukri, do you have the ability to consolidate your student loans at today's low rates? If so, do it.

You and your wife are young, are children in your future? I suggest you make certain that your family can get by on only one income, including mortgage, student loan payments, and everything else. You may never need or want to get by on only one income, but just in case, its great to know that you can ride out income disruptions. Arrange all of your finances with that in mind.

Originally Posted by Goldy

I would strongly suggests you pay off those 9.25% loans first which would give you ~42k for your EF and 30k for your DP.

You are close but be patient. See if you can consolidate some of those loans as that might help you considerably.

I looked at consolidation, but thought they just averaged my current loans and used that rate. If they use the current rate, that should be quite a bit lower than most of my loans, but I didn't want to lose that 9k at 2.625% in the consolidation if I could keep from it. Would it be better to pay off the 9.25% loans before consolidation?

Originally Posted by JoshuaHeckathorn

While I don't think it's absolutely necessary to pay off all your student loans before getting a mortgage, I do think it's necessary to have at least a 6-month EF and your 20% down payment saved up and safe in a high-yield online savings account. If you're saving $3-$4K per month, you should be able to get there relatively fast.

I have pretty well decided, based on all your advice, to pay off the 11k at 9.25% asap (while maintaining an EF), then start saving toward a 20% downpayment.

Originally Posted by Hector

He is looking to buy a house whose value is around their yearly gross income. At their current savings rate, they would have enough cash to buy house in 3-4 years!

Most people don't mind taking another debt while they are already in debt. I don't believe in it. If I was in his situation, I would
1. save for 3 months of EF
2. pay off student loans
3. build 6 months of EF
4. start saving for retirement
5. save for 20% down payment
and then buy house

I am already capping out my retirement 401k at work, though I'm not really sure if I should be doing that. the company matches up to 6%, and I am contributing 16% pretax currently. Almost half of my check is usually OT pay, so that doesn't get factored into the percentage, so the difference is only around $120. I didn't figure I would miss it since I capped it at the same time as my last raise. My wife is contributing 5% that her company matches, pretax.

[Petunia 100]

Originally Posted by Kukri

Any suggestions? I think my current bank offers something around 0.02% or something equally useless...

I use and like Ally, other options include ING, Emigrant and Discover Bank.

[riverwed070707]

Look at local credit unions you might qualify for with high interest savings too. Mine is still carrying a 4% rate -- was as high as 5% a year ago.

[Hector]

Originally Posted by Petunia 100

I use and like Ally, other options include ING, Emigrant and Discover Bank.

If you are going to wait more than one year, you should put 20k in ibond.

[Frugal]

I personally believe it is always best to put at least 20% down. We did. It may take some sacrifice in the short term, but it can really pay off in the long run.

I believe 110k is really a high level of student loan balance. I would attempt to pay off whatever possible before getting a mortgage.