Announcement

Collapse
No announcement yet.

Student Loan vs. House

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

    Student Loan vs. House

    I graduated in May of 14' from college and I am 23 years old. I bounced around from a few jobs and make a decent wage. I currently have $25,000 is federal student loan debt and owe about $17,500 interest free on a car I recently purchased. I've been working full time since my freshman year of college and have been fortunate to save. I have about 26,000 in my savings with a growing 401k each pay check. I still live at home and my expenses are still low each month. Do I pay down most of my student loan debt down or continue to save for a house? Not even sure if I would even qualify for a mortgage any time soon with having 3 jobs in the last 2 years.

    #2
    Originally posted by bjam27 View Post
    I graduated in May of 14' from college and I am 23 years old. I bounced around from a few jobs and make a decent wage. I currently have $25,000 is federal student loan debt and owe about $17,500 interest free on a car I recently purchased. I've been working full time since my freshman year of college and have been fortunate to save. I have about 26,000 in my savings with a growing 401k each pay check. I still live at home and my expenses are still low each month. Do I pay down most of my student loan debt down or continue to save for a house? Not even sure if I would even qualify for a mortgage any time soon with having 3 jobs in the last 2 years.
    Get rid of your other debt then buy a house with as much down as you can afford (preferrably 20% but that's not realistic in many cases).

    Comment


      #3
      I personally subscribe to the philosophy of having a limited savings account (3-6 month take home emergency fund) if I have a significant amount of debt outstanding. I'd much rather get out of debt first and be able to save/invest larger portions of my income later because I no longer have outstanding debt. It is definitely possible to balance debts and still find a way to save and invest to build wealth I just find it more difficult and more stressful, especially when unforeseen emergencies pop up.

      Comment


        #4
        Originally posted by bjam27 View Post
        I graduated in May of 14' from college and I am 23 years old. I bounced around from a few jobs and make a decent wage. I currently have $25,000 is federal student loan debt and owe about $17,500 interest free on a car I recently purchased. I've been working full time since my freshman year of college and have been fortunate to save. I have about 26,000 in my savings with a growing 401k each pay check. I still live at home and my expenses are still low each month. Do I pay down most of my student loan debt down or continue to save for a house? Not even sure if I would even qualify for a mortgage any time soon with having 3 jobs in the last 2 years.
        Rule of thumb for a house is to have 20% down payment and a 6 month emergency fund in place before buying.

        I'd focus on getting rid of the car loan first.
        Brian

        Comment


          #5
          Pay down the student loan debt first. Put 12-13k on it today. I imagine the interest rate is greater than 0%.

          The car loan is a perfect example of leveraging FREE money so you can make your money work for you elsewhere (i.e. the student loans). You'll pay it off soon enough.

          I returned home 1 year after I graduated college (renting was getting me no where).

          SAVE AS MUCH AS YOU CAN!!!

          if your parents aren't charging you rent, buy them stuff for the house (e.g. I got mine garage door openers and a weber grill when they moved into their new house and let me come along).

          life is very easy when you go to purchase a home and have close to 100k saved. don't let little purchases get in the way of homeownership. having a house is expensive!

          Comment


            #6
            I am going to go a different direction, and chances are you will not like me.

            Here is a snapshot of what I have gathered:
            $25,000 in student loans
            $17,500 on car loan
            $26,000 in savings
            Income: unknown

            My Recommendation

            Step 1: Sell the car. Yes, it is 0% but really you should not have taken out that loan in the first place (especially since you had all of that student loan debt). Unless you make over $40,000 per year AND can pay off the car loan within 2 years, I would get rid of it for sure. Even if you could pay it off that quickly, I would still probably get rid of it and find something less expensive (yet reliable, and no the two aren't mutually exclusive).

            Chances are you are "underwater" on your car loan. Buying a car that expensive at 0% means there is a good chance that you owe more than what it is worth. If you cannot sell for enough to cover the loan, then you will have to cover the deficit yourself.

            Step 2: Have an emergency fund of at least $1,000 to $3,000. Some of the $26,000 you have in savings should be set aside as an emergency fund. A real emergency fund should be worth 3 to 6 months worth of expenses. However, while you have debt that you are paying off it is advised that you keep at least a few thousand and throw the rest at your debt.

            Step 3: Throw your $26,000 of savings (less your emergency fund) at your student loans.

            If you are not going to follow my recommendation, then at least use your $26,000 savings to pay off your car loan (less the emergency fund of course). Yeah many people on here will disagree because it is a 0% car loan. But did you really get 0%? Chances are you are underwater and did not get much of a discount when you bought that car.

            I am sorry to say, but you are FAR from being a home-owner. And there is nothing wrong with that. There is nothing wrong with being a renter while you are improving your financial position so that you can some day be a home-owner. As a renter, you have less responsibility. So enjoy it!

            Before becoming a home-owner, I recommend the following:
            1. Become debt-free on everything else
            2. Have an emergency fund worth 6 months of expenses (base this on expenses as a home-owner)
            3. Set aside a 20% down-payment
            4. Take out a 15 year mortgage only
            5. Mortgage payment should not exceed 25% of your income (principle and interest)


            A 20% down payment is NOT unrealistic because guess what? You are going to end up paying 100% or more in the end! Depending on whether or not your borrow, how much interest you pay, and what kind of deal you get when you buy. Everyone pays for their house in the end.

            People will disagree with me and my recommendations, and that is fine. If you follow these recommendations, you WILL work your way into a better financial position.
            Check out my new website at www.payczech.com !

            Comment


              #7
              I am not sure if you are working in your field in a position with reasonable opportunities for promotion. It seems the current employment climate requires changing organizations and even moving to other cities. You are in a unique position living at home, needs looked after at no cost. It's in your interest to contribute to any employer's retirement plan to capture any matching funds. You don't want to leave any free money on the table. I don't know your level of expertise in evaluating the market but it's a great opportunity to set yourself up for success.

              In my opinion it's premature to jump into homeownership should career opportunities flash elsewhere. Having 20% DP avoids ridiculously expensive mortgage insurance and gives you time to get your FICO score in the high 700s which will give you a better bargaining chip in negotiating mortgage rates. Over 30 ears every sliver of a point counts! I wish I could convince you to read The Millionaire Next Door [Danko] as you've the right ducks in the row

              Comment


                #8
                Thanks for the advice. My Current salary is $66,000 without added overtime each week of a minimum of 10 hours. If it wasn't for my salary I wouldn't have justified buying a new car. With the rising costs in renting i'm not sure if I should just wait until I find something cheap to put equity into by purchasing or waste my money on rent.

                Comment


                  #9
                  Originally posted by bjam27 View Post
                  Thanks for the advice. My Current salary is $66,000 without added overtime each week of a minimum of 10 hours. If it wasn't for my salary I wouldn't have justified buying a new car. With the rising costs in renting i'm not sure if I should just wait until I find something cheap to put equity into by purchasing or waste my money on rent.
                  Renting is not wasting money. Is buying food that is gone once you consume it a waste of money? Of course not, you need a place to live just as you need food to survive so renting is a perfectly viable option for now.

                  Comment


                    #10
                    If it were me I'd pay off any loans over 3 or so %. Start maxing a roth IRA ($5500 I believe) in addition to your 401K contributions. What % are you putting in your 401k? No reason to pay off a 0% loan but keep the car 10+ years, don't just upgrade when you dont have a car payment anymore. At your salary you can certainly afford it.

                    I wouldn't buy a house just because you think its the next step. If you're young and single, I'd keep your options open while continuing to save so you have a good foundation when you are ready to buy. If you're itching to get out of your parents house, rent. If you're parents don't mind you staying and you like being there, make sure you're contributing to household expense - in general I think its crazy for a 24-y-o to be living at home especially with a salary large enough to support a whole family but if its working for both sides, keep saving until you're sure where you want to settle down!

                    Comment


                      #11
                      You should pay off the student loan before applying for the mortgage.

                      Comment

                      Working...
                      X