Just can't figure it out alone

**bjl584** · 03-07-2012, 06:56 AM

I would hold off on the house purchase. You don't have enough saved for a downpayment.

The easiest way to get out of this may be to find an apartment outside of the city and commute a longer distance until you can save up the necessary amount to buy a house. I'm assuming apartments get cheaper the farther away you get from the city. That is the case here in Pittsburgh. If you are willing to drive 30 minutes into town everyday, then you can save several hundred dollars a month in rent.

**MonkeyMama** · 03-07-2012, 07:20 AM

Definitely do not buy a home - it will likely be more expensive in the long run. Your best bet is finding a roommate, I'd imagine. If you stay where you are and find a roommate, should be $500/month rent. Seems extremely reasonable based on your income, and the simplest solution, at that. {Are you saying lease is under roommate's name? Wouldn't landlord rather keep you than find new renters, even if that is the case?}

For reference, we bought a home because it was cheaper than renting (in an expensive region), BUT that was for two of us, and we only bought because we had 20% down + savings, etc. I never would have used that as an excuse to buy before we were really ready. Without the savings and the down payment, it wouldn't have made any sense. It might have been cheaper on a monthly basis, but would have been a LOT of unnecessary risk to take on. IT's a big commitment.

In contrast, while I was single I had a $450/month rent situation, with roommates (for reference, we couldn't find a decent studio apartment for less than $1200/month or so. "Decent" just meaning not cockroach infested or not in the ghetto.

). It's really the best way to pay off the debt and get ahead - suck it up and find some roommates. You will have extra motivation to pay off the debt quickly and move on - or even to just save up for home ownership - if you don't like living with roommates. Certainly doesn't mean you have to live that way forever, but it will make things easier in the long run.

**humandraydel** · 03-07-2012, 02:39 PM

$50k starter home? In Hotlanta? Are you sure?

**SocraticMethod** · 03-07-2012, 06:01 PM

Originally posted by artwest

Rent.

Based on the information you have given, you gross $6k per month. You should be netting somewhere around $4k per month. If you double your current expenses, $1k for rent, $700 utilities + misc., $285 and $320 for SL you should still have around $1600 per month left over. I suggest that you throw that at the $39k SL. Become debt free as quickly as possible.

It is best to be debt free, have a 3-6 month EF and at least 20% for a down payment on a house before you buy a house. If you buy a house and are not financially prepared (have EF and no debt), you could wind up with a nightmare. People tend to forget that stuff happens when you own a house. Water heaters go out, furnaces go out, faucets leak and other minor and major repairs need to be done to maintain a house. These things add up and you have to be in decent financial shape or you could have a nightmare on your hands.

I gross about 6k per month but after taxes, 401k deductions, healthcare, and other work related costs (parking, etc.) I bring home 3 - 3.2k net income per month (1.5k bi-weekly).

Your point about unexpected costs is well noted and I do need to run simulations to see just how bad it could be, as I'd have to furnish and maintain a house.

As for paying on the SL. I am kind of limited in what I can do. For now I make double payments on the 7% loan(so paying almost 900 bucks per month total on SL). That loan in handled with Sallie Mae and they make it surprisingly difficult to pay more than a a double payment as they love to just push back payment due dates even if you specify that you want all extra applied to principal. For now, I usually save all double payments throughout the year and make one big lump sum payment at the end of the year and then have them re-disclose the loan to get a new lowered payment.

Originally posted by bjl584 View Post

I would hold off on the house purchase. You don't have enough saved for a downpayment.

The easiest way to get out of this may be to find an apartment outside of the city and commute a longer distance until you can save up the necessary amount to buy a house. I'm assuming apartments get cheaper the farther away you get from the city. That is the case here in Pittsburgh. If you are willing to drive 30 minutes into town everyday, then you can save several hundred dollars a month in rent.

The situation is similar in Atlanta; however, I already live 30 minutes from work and moving much farther out (beyond what we call "the perimeter") causes transit time to increase exponentially as you have to use the jam packed interstates for the commute. While the traffic itself doesn't bother me the increased gas cost does become a bit of an issue. All the same I will look into longer distance commute living arrangements and appreciate the idea.

Originally posted by MonkeyMama View Post

Definitely do not buy a home - it will likely be more expensive in the long run. Your best bet is finding a roommate, I'd imagine. If you stay where you are and find a roommate, should be $500/month rent. Seems extremely reasonable based on your income, and the simplest solution, at that. {Are you saying lease is under roommate's name? Wouldn't landlord rather keep you than find new renters, even if that is the case?}

For reference, we bought a home because it was cheaper than renting (in an expensive region), BUT that was for two of us, and we only bought because we had 20% down + savings, etc. I never would have used that as an excuse to buy before we were really ready. Without the savings and the down payment, it wouldn't have made any sense. It might have been cheaper on a monthly basis, but would have been a LOT of unnecessary risk to take on. IT's a big commitment.

In contrast, while I was single I had a $450/month rent situation, with roommates (for reference, we couldn't find a decent studio apartment for less than $1200/month or so. "Decent" just meaning not cockroach infested or not in the ghetto.

). It's really the best way to pay off the debt and get ahead - suck it up and find some roommates. You will have extra motivation to pay off the debt quickly and move on - or even to just save up for home ownership - if you don't like living with roommates. Certainly doesn't mean you have to live that way forever, but it will make things easier in the long run.

The problem here in Atlanta is that as the housing market declined rent-based living has sky-rocketed. I've been burned by room mate living situations in the past which is why I'm always hesitant to get involved in them. I've been lucky thus far, but I suppose one must do what one must do.

Originally posted by humandraydel View Post

$50k starter home? In Hotlanta? Are you sure?

They definitely exists. Go to Zillow.com and set your filters. They are out there, especially with all the foreclosures around.

**SocraticMethod** · 03-07-2012, 06:19 PM

I really appreciate all the input. I could possibly stop doing the double payments on the SL funnel everything to savings and build up enough for a down payment while still maintaining an emergency fund. Should that be my strategy? I just don't see long term viability in constantly renting and building no value/equity. Yes, there are cost associated with home ownership but at least it can all be viewed as an investment that will hopefully bare a return, long term. There are a couple of things that burn in the back of my mind. The housing market seems to have bottomed out (as mortgage interest rates are on the rise once more). I'm thinking it might be the wise move to get a 50k house, buy down the interest (would cost 7.5k on a 50k house), thus normalizing future rent payments.

With the NACA mortgage PMI tops out at $50 per month max with the duration varying depending on the size of the mortgage (5-10 years).

Another question:
Is home ownership unwise specifically because I don't have the 20% down payment + EF or are you all saying that it is unwise (in general) to seek home ownership while carrying the SL debt?

**YLTL_Dan** · 03-08-2012, 07:46 AM

Originally posted by SocraticMethod View Post

Another question:
Is home ownership unwise specifically because I don't have the 20% down payment + EF or are you all saying that it is unwise (in general) to seek home ownership while carrying the SL debt?

I was in a similar situation as you a few years out of college. I piled up $50k in debt and shared an apartment with a friend for five years. At the time, I felt like I wasting money by renting for so long. However, it gave me flexibility and allowed me to continue to focus on my debt.

After finally purchasing a house 2.5 years ago, I'm glad I didn't try to do it before. There are some major expenses associated with buying and maintaining a home... especially if you try to find one of those $50k foreclosures. More than likely you'd need to put a lot of money into fixing it up, and that can add up really fast.

It sounds creepy, but there are some websites where you can find potential roommates. I've had friends try this and it worked out ok. To answer your question, I think it's unwise to purchase a home due to a combination of the two issues (no 20% and the SL debt). If you had 20% saved for a home.. then I'd say you should pay off your SL debt unless you had some unique circumstances.

**SocraticMethod** · 03-08-2012, 11:24 AM

Just wanted to say thanks to everyone. I'm going to try and talk to my landlord and make arrangements for finding another room mate. If that doesn't work out I'm going to try moving farther away from the city and sucking up the commute. Going to re-double my efforts on the SLs and hope for the best. Thanks again!

**ecoadapt** · 03-08-2012, 05:51 PM

Originally posted by SocraticMethod View Post

Just wanted to say thanks to everyone. I'm going to try and talk to my landlord and make arrangements for finding another room mate. If that doesn't work out I'm going to try moving farther away from the city and sucking up the commute. Going to re-double my efforts on the SLs and hope for the best. Thanks again!

I think that's the best thing to do. Talk to your landlord and see what you both can come up. If you can't reach for a better solution then moving out would be best! Good Luck!

**BudgetSurgeon** · 03-24-2012, 08:45 AM

Originally posted by SocraticMethod View Post

Hello everyone. I've arrived at this forum after stumbling along in my quest of being working towards debt freedom. I'm no where close but I'm determined and I just can't think of which way I should go.

So my current situation:
Student Loans: 39k @ 7% (monthly payment of 285)
45k @ 6.3% (monthly payment of 320)
Current Rent: $500 (Renting with room mate - total rent is 1k)
Utilities + Misc: $350 max (this is a worst case scenario and includes gas, electric, cell phone, and cable service)
Car Payment: Paid off
Annual Income: grossed 72k in 2011 (may go up or down by 2-3k per year)
401k: ~25k
Liquid Money: ~11k savings

So, my current living situation is due to change in the near future. That is to say that my room mate recently graduated and may be moving out soon. Anticipating this possible change I have taken steps to qualify for a NACA Mortgage (currently 3.8% interest rate).

I want to start a serious debt snowball on my student loans however, the cost to rent in Atlanta is causing me troubles. It has now become a question of whether I should rent or buy a home? An apartment will cost me more than $500 unless I find a 3+ person setup which is less than desirable. This is made all the more unappealing when you consider that I could buy a 50,000 dollar starter home, pay down the interest rate and have more available money to funnel towards SL debt in the long run.

So I guess I'm trying to figure out if I should use what funds I have in the pursuit of home ownership or just start slaughtering the SL debt. I've been paying extra on the 7% interest loan, but it has been a fine balance of frugal living to eek out savings and pay extra on the loans. I'm determined to get out of debt, but I just don't know what to do right now. Do I buy a home or make other arrangements?

Here are my 2 cents -> Always pay your debt down with the attempt at eliminating it, before you start incurring more debt. Yes, slaughter that student loan debt first, since you have a fairly sizable amount left on those 2 loans. Those, by themselves, are the equivalent of a healthy mortgage amount, and you are not building any equity with them. Additionally, thoroughly review your current monthly budget and aim to reduce your spending by 20% across the board. This will help facilitate extra cash flow, which can be used to pay down your debt. For example, if you are spending $500 per month on food (I know, a high example amount), aim to cut that by 20%, or $100 per month ($1,200/yr). This can be accomplished via eating breakfast at home, brining lunch to work, eating out less often, using food coupons at supermarkets for items that you regularly purchase, etc. Reduction of budget can act as a catalyst for increased income, which in turn, will help you pay down your debt more rapidly.

Good luck in your efforts,

BudgetSurgeon

**mgkimsal** · 06-13-2012, 03:07 AM

" I just don't see long term viability in constantly renting and building no value/equity."

You've got an income, and you've got debts. You've got savings. All together, you've got a net worth. Right now it sounds like it's negative or very low. "Building equity" in a house... is primarily shifting the numbers around a bit, but without any significant traction towards increasing net worth. It's gamble that housing prices will appreciate much faster than your 7% rate on your student loans in the next few years, but paying them off will certainly add to your net worth (or reduce the negativeness, depending on how you look at it).

"Building equity" in something that's fairly illiquid, which generally carries a moderately high transaction fee (realtor fees, sales taxes, etc), and which you generally can't affect the price of on your own very much... none of that sounds as appealing as getting rid of lots of debt.

You've got $84k in debt, and at most $11k of cash. How is adding another, say, $50k to debt a great option? "building equity" in a home is a pretty romanticized view of things in my worldview, so take that as you will. In your situation, I'd focus severely on debt reduction before taking on even more debt.

My student loan never exceeded more than 20% of my gross income (max $5k when I was earning $25k) and even then I was uncomfortable with it. Someone earning $70k with $70k of student loan debt is considering taking on more debt is hard for me to swallow, so again, that's where I'm coming from. Obviously YMMV.

**red92s** · 06-14-2012, 06:52 AM

I live in Atlanta. I know there are listings for $50k homes , but if you saw the inside of one of those you'd probably run away . . . fast. Most of them are the worst houses on the worst streets on the worst blocks of bad neighborhoods. Consider that to break even on a home purchase, once you factor in closing costs, moving costs, repairs, maintenence, agents, taxes, yadda, yadda you are looking at a minimum of 5 to 7 years unless you see significant appreciation. During that time, you are paying primarily interest, and not building any equity at all.

**BMEPhDinCO** · 06-15-2012, 09:14 AM

A lot of good advice already - as an ex. GA (atl area) liver, here are my thoughts...

1. Move along the metro and use that instead - I know it sucks, but it's cheaper than driving in and even 2-3 days a week would help.

2. Try going west towards Douglasville - housing is cheaper there and still around 1h commute to most of ATL (if you are far north or west, try those areas instead).

3. Don't buy right now if you can't afford at least $100k house and have at least $20k to put down on it + $10k for "oh sh*t" moments that will happen in the first year.

As for roommates - can you move closer to GA tech or Ga State? Or perhaps Emery? Grad students are good roommates as they will be around all 12 months and usually have some kind of income (engr, med).

Make sure you also have at least 3 months in expenses saved up before you start spending anything else - and make those expenses the entire rent, just in case.

Good luck!

Just can't figure it out alone