Pay off student loans or save for house down payment?

[pmrich3]

Hi all, I am a new graduate and have been working at my current job for 8 months now and cant decide whether extra cash should go towards paying down student loans or saving for a 20%+ down payment on a house. I am recently married and our combined financial situation is as follows:

Gross annual income: 100k-110k
Student debt: 36k at average 10% interest
Monthly income (after taxes): 5,500
Rent:$800
Monthly expenses (utilities, gas, phone, groceries, entertainment, etc.): $1800

So, what do you guys think? We are on track to have at least 20% saved for down payment on a $200,000 house in 10 months but cant decide if we should buy the house or use that money for student loans. Any suggestions would be greatly appreciated. Thanks

[Wino]

Your loans are going to cost you $3600 per year until you pay them, declining as you make payments. If you delay three years in the repayment, you're going to end up paying no more than $10,000 (as the amortization kicks in) for the interest.

So, the question becomes: will housing prices and interest rates make it more expensive to buy a house in two years than it is now? You have about $10K as the "sweet spot" for this to be worthwhile.

My general-purpose suggestion is to watch interest rates and housing prices. If you see them edging up, switch your payments to savings rather than the loan; in ten months, you'll be able to buy the house. Since things are fairly static on the real estate market right now, I'd pay down the student loans and hope that housing prices and interest rates remain low. In two years, you'll have your loans paid and a 20% down payment, and therefore more money to use to pay off your house as you go.

[marvholly]

I do NOT understand why this type of question is always posted as either or.

You have $XXX/month that is not committed to required cost of living bills. Split it up with part to each. If housing costs/interest rates remain low when you have gotten to say a 10% downpayment saved revise the % to each BUT keep saving toward each.

Example:
now 50% to each
12 months from now if house remains pretty much same change to 75% loans and 25% house. Altenativly if house starts to go up change to 75%-90% house and minimal on loans.

[esb3357]

Honestly, I would pay off the student loans first since they are 10%, and look for the FHA programs available for first home buyers where you put 3.5% down. Once I paid off my student loans I would great a large house savings fund. I know most people argue 20% down, but currently the market is in a great place.