Best to be 100% debt free before mortgage?

[panda_bear3]

Looking ahead a bit, I am *hoping* to make my first home purchase by the end of 2015 if all goes well. I currently owe <13,000 in student loans, with a monthly payment of $250. I have not started saving for a down payment yet (within the next few months, as soon as I reach my Emergency fund goal of 10k)

I can realistically wipe out the smallest of 3 sub-loans by the end of June, leaving <9,000 between the last 2 - and would then snowball my payment to $125 to each (same $250/month payment). Then, tackle the down payment saving. I would still have a loan balance when I begin my house search.. is that ok? Or is it better to completely pay off the debt and then start saving for a house?

Being careful I could probably kill the loans by the end of 2014. But with $0 saved towards a house, probably getting myself to ~17,500 by October 2015 that route. Or, stay the course, and have ~25,000 for the house by October 2015, with the loans. It may seem stupid, but I am just dying to move out of my parents house and the thought of another 3,6,8... months to pay off my loans, THEN get to a realistic down payment is dreadful.

I have no other debt aside from the student loans, I have paid off my car, never missed or had a late payment, have several credit cards that I do not carry balances on, age of accounts is between 1-5 years, and good credit per Credit Karma/Transunion ~765, and equifax 753 at last check.

Thoughts?

[lorraineb]

It may seem stupid, but I am just dying to move out of my parents house and the thought of another 3,6,8... months to pay off my loans, THEN get to a realistic down payment is dreadful.

Which is more dreadful -- staying with your parents and being debt free or being on your own but in debt?

[Eagle]

Looking ahead a bit, I am *hoping* to make my first home purchase by the end of 2015 if all goes well. I currently owe <13,000 in student loans, with a monthly payment of $250. I have not started saving for a down payment yet (within the next few months, as soon as I reach my Emergency fund goal of 10k)

I can realistically wipe out the smallest of 3 sub-loans by the end of June, leaving <9,000 between the last 2 - and would then snowball my payment to $125 to each (same $250/month payment). Then, tackle the down payment saving. I would still have a loan balance when I begin my house search.. is that ok? Or is it better to completely pay off the debt and then start saving for a house?

Being careful I could probably kill the loans by the end of 2014. But with $0 saved towards a house, probably getting myself to ~17,500 by October 2015 that route. Or, stay the course, and have ~25,000 for the house by October 2015, with the loans. It may seem stupid, but I am just dying to move out of my parents house and the thought of another 3,6,8... months to pay off my loans, THEN get to a realistic down payment is dreadful.

I have no other debt aside from the student loans, I have paid off my car, never missed or had a late payment, have several credit cards that I do not carry balances on, age of accounts is between 1-5 years, and good credit per Credit Karma/Transunion ~765, and equifax 753 at last check.

Thoughts?

First congrats on paying off your car and never missing or having a late payment! Also congrats on paying off your cards every month. And having a good credit score is a huge plus! Congrats on that too!

Buying a house is a big change. We bought one last year. One thing to consider: It will always cost you more than you think it will cost you.

1. What is your current monthly net income (after tax, health insurance, etc)?

2. How much do you have in your savings right now?

3. What are your current monthly expenses?

4. Are you living rent free at your parents place? What is your relationship with them like?

5. Why not endure the hardship and pay off the rest of the student loans before looking for a home?

[panda_bear3]

1. What is your current monthly net income (after tax, health insurance, etc)?
I net $2300-2350 average a month. I work 32 hours a week.. I'm trying to pick up hours where I can, but it isn't consistent. I may look into a second job by summer if I'm unable to pick up shifts regularly in the next couple of months.

2. How much do you have in your savings right now?
My emergency fund is around $6700, plus $2500 in general savings for medical/dental copays, car repairs, and non-routine expenses

3. What are your current monthly expenses?
Student loan $250
Misc spending, gas and cell phone $400
Car (set aside for annual insurance payment plus some to add for repairs - car is paid off) $150
$1500+ a month going to savings ... If I pay off the loans (could be done by December) I would be able to snowball that and have $1750 a month to save.

4. Are you living rent free at your parents place? What is your relationship with them like?

Zero living expenses, I pay for my car expenses, spending and my portion of the phone bill. We have a good relationship and it's not that I'm trying to get away from them in a bad sense, I'm just ready to move on. I moved back out of college dorms in 2011, commuted my last year and have been home since. I know I *can* live at home it's just a matter of doing so, and not getting wrapped up in "I want my own place".

[snafu]

I've no idea what housing costs in your region, whether you would seek new construction, 'character' housing, single family dwelling or condo. Are you planning 20% downpayment to avoid the added cost of expensive mortgage insurance? Would you consider giving up some degree of privacy short term, via room mates to escalate student loan pay-off?

You need a realistic understanding of the cost of home ownership. Most of us compare and contrast costs of rental to owner but you contribute $ 0. to accommodation. There is a long list of costs starting with home inspection and closing costs to buy a home over and beyond mortgage. You need to fully understand a mortgage amotorization table and how it works. These are not simple interest loans like your car for example. Interest is front loaded and you'll be paying primarily interest for the first 15 years. Only a few dollars from each payment will be applied to the principal...the cost of the house. Your assigned monthly payment will go to interest, property tax, mortgage insurance [if required], home insurance [structure] and personal property insurance [furniture, appliances and stuff]. Utilities are always more expensive than anyone expects. [heat, electric, internet, cable, water, sewerage, trash removal, recycle fees, cell phone]

Once you have the key to your new dwelling you get to furnish and outfit the place. You may need to replace appliances, paint and decorate. If there is a yard, you will need a long list of large and small pieces of equipment. The whole issue of home maintenance takes twice the time and 1 % of the value of the house each year.

You my as well use the time it takes to pay down student loans and save up 20% DP to watch real estate on line in the areas of interest deciding what is critical to your lifestyle and what would be 'nice to have.' Make a list of furnishings you will need and order of purchase. Enlist aid of GF and mom to list what is needed to outfit a kitchen, bathrm and laundry. What tools will you require to dissemble and reassemble furniture, attach pictures on walls and hang jackets?

We more experienced home owners suggest you start by clearing debt because home ownership always costs more than we expect. Tradesmen are expensive and learning DIY skills is important. If you don't get the extra hours or part time job right away, I suggest you go to the free DIY sessions offered by HD or the large hardware outlets in your area. It's time well spent.

[mo0n]

What snafu said, x 1000

I'm of the opinion that get rid of whatever debt you have prior to buying. This is because once you buy...you're going to be buying buying buying (whether it be furniture, new fixtures, or a new furnace).

And (hypothetically), just because you have paid off your student loans and don't have any consumer debt, that doesn't necessarily mean you should buy a more expensive house because you can. That could also mean that you can now buy the accessories that go with the house without having to go into consumer debt. Does that make sense?

[bjl584]

I was 100% debt free before I bought my first house. It helped tremendously.

[Permanent Temp]

Snafu Thank you for the breakdown that is going to help a lot when we plan to get a house in a few years.

[panda_bear3]

I've no idea what housing costs in your region, whether you would seek new construction, 'character' housing, single family dwelling or condo. Are you planning 20% downpayment to avoid the added cost of expensive mortgage insurance? Would you consider giving up some degree of privacy short term, via room mates to escalate student loan pay-off?

You need a realistic understanding of the cost of home ownership. Most of us compare and contrast costs of rental to owner but you contribute $ 0. to accommodation. There is a long list of costs starting with home inspection and closing costs to buy a home over and beyond mortgage. You need to fully understand a mortgage amotorization table and how it works. These are not simple interest loans like your car for example. Interest is front loaded and you'll be paying primarily interest for the first 15 years. Only a few dollars from each payment will be applied to the principal...the cost of the house. Your assigned monthly payment will go to interest, property tax, mortgage insurance [if required], home insurance [structure] and personal property insurance [furniture, appliances and stuff]. Utilities are always more expensive than anyone expects. [heat, electric, internet, cable, water, sewerage, trash removal, recycle fees, cell phone]

Once you have the key to your new dwelling you get to furnish and outfit the place. You may need to replace appliances, paint and decorate. If there is a yard, you will need a long list of large and small pieces of equipment. The whole issue of home maintenance takes twice the time and 1 % of the value of the house each year.

You my as well use the time it takes to pay down student loans and save up 20% DP to watch real estate on line in the areas of interest deciding what is critical to your lifestyle and what would be 'nice to have.' Make a list of furnishings you will need and order of purchase. Enlist aid of GF and mom to list what is needed to outfit a kitchen, bathrm and laundry. What tools will you require to dissemble and reassemble furniture, attach pictures on walls and hang jackets?

We more experienced home owners suggest you start by clearing debt because home ownership always costs more than we expect. Tradesmen are expensive and learning DIY skills is important. If you don't get the extra hours or part time job right away, I suggest you go to the free DIY sessions offered by HD or the large hardware outlets in your area. It's time well spent.

snafu, thanks for the lengthy response. I have been doing my research even though I'm still many months away from making a purchase, so I am aware of how the mortgage/interest schedule works, and obviously I need to furnish the home.... Though I have a good "checklist" i'm sure (as with most new homeowners) there's plenty of random "I didn't even think of that" things I'll be buying along the way. I actually have acquired quite a bit of "stuff" that will be necessary for whenever it is I do buy a home - not too many things left that I would realistically be able to purchase/store ahead of time. (Not sure on part of "enlist aid of GF and mom for what is needed" - I'm a 20something female and definitely know what is needed to furnish kitchen, bathroom, laundry, etc )

To all, thank you for your input. I have given it some thought, and will go ahead and plan to pay off the student loans before starting the house savings. Goal is definitely by the end of the year, hoping for sooner!

[Eagle]

I was 100% debt free before I bought my first house. It helped tremendously.

I agree. When we bought our first home last year we had 80k in the bank, both cars paid off, and no consumer debt. It helped us put down 20% of our home mortgage (to avoid home mortgage insurance) and we still have a comfortable e-fund.

A house will always cost you more than you think.

[Eagle]

To all, thank you for your input. I have given it some thought, and will go ahead and plan to pay off the student loans before starting the house savings. Goal is definitely by the end of the year, hoping for sooner!

This is definitely a good choice and a good goal! Keep moving forward and knock out that debt!