Life question

[prf2009a]

Hey everyone,

Long time listener, first time caller here
I am looking for some help on my current situation as it is a little unique.

My wife and I are both 26 years old, looking for some help on what to do in the near future.

I make $65K and have $7K in student loans.
My wife made $20K in 2011, very conservative expectations are that she will make $40K in 2012. (She opened a practice in Feb 2011, so far things are going great with the practice) She has $150K in student loans.

We would like to purchase a home in the near future. We want to base our purchase on my income alone putting our budget in the $150K-170K range for a home. We have no credit card debt and 1 car loan with payments of $300 per month and $7K outstanding, no interest. $15K in saving. I put 10%+ 4.5% employer match into my 401k. Wife has not contributed, but we plan to put a minimum of 10% of 2012 earnings into an IRA.

We do pretty well with our finances, but are trying to be more frugal. (Cut cable in Dec and got a Roku, less eating out, coupon clipping, etc.) I'm sure if i post my budget there are plenty of other things we can work on also.

My question is assuming we save enough for a 20% down payment and 6 month emergency fund are we crazy to want to own a home, or should we live in a box until student loans are paid off?

[bjl584]

If you have 20% down plus a 6 month emergency fund in place, and your home does not cost more than 3 times your annual salary, then knock yourself out. You should be fine even with outstanding student loan and auto debt.

I would say that paying off the car would make things easier for you though. It should be a priority to get it paid off. What is the outstanding balance and how much longer do you have to pay on it?

[prf2009a]

If you have 20% down plus a 6 month emergency fund in place, and your home does not cost more than 3 times your annual salary, then knock yourself out. You should be fine even with outstanding student loan and auto debt.

I would say that paying off the car would make things easier for you though. It should be a priority to get it paid off. What is the outstanding balance and how much longer do you have to pay on it?

$7,700 left on the auto. It was a 3 year no interest loan. We have 2 years and 2 months left to pay on it.

[bjl584]

$7,700 left on the auto. It was a 3 year no interest loan. We have 2 years and 2 months left to pay on it.

Do you have the ability to accelerate the payments?

I was easily approved for my first home with 20% down. I, like you, had a small auto loan at the time as well. Although affordable, I decided to completely pay it off from my savings after a few months of being in my house. I just didn't want to deal with it, and it was an extra $250 a month that I had in my pocket to invest and save.

[Slug]

I'm not sure why you should want to pay down a 0% loan at an accelerated rate when you have student loans that are definitely not at 0%. That said, I would focus on paying down the highest interest student loan debt while saving for the down payment on a home.

[Kooshiball]

By assessing your financial situation, you don't have any problem with buying your home unless you buy million dollar house. Practically, only debt you have is your student loan and car loan. Like someone in the forum said, if you can wait, I would wait because housing market in the US will still go down further considering so many shadow inventories (more than 2 million homes are not shown on the market yet) held by banks. Since Fed will keep the interest low until mid 2013 (I saw recent news that Fed may extend this till 2014), you should wait little bit more until housing price will go down until near the bottom.

That's my take. Good luck to you!

[sandrark]

I'm not sure why you should want to pay down a 0% loan at an accelerated rate when you have student loans that are definitely not at 0%. That said, I would focus on paying down the highest interest student loan debt while saving for the down payment on a home.

Cash flow. It's likely that the required student loan minimums are much less expensive than the required car payment. Also, once the car is paid off, it can't be repo'd.

Sandi

[dczech09]

If I were in your shoes, I would not buy a house. I do not see buying a house while having a $7,000 car loan and $100,000+ in student loans as being that great of an idea. You have a $15,000savings which could cover emergencies, but I cannot imagine your financial budget to be too liquid with the addition of a mortgage payment.

What is your wife's practice? What I would do is wait out the housing market, PAY OFF THE CAR FOR SURE, and look at allowing your wife to re-invest in her business. That re-investment in her business may allow her to increase her income. When she does that, you could probably knock out the student loans fast and save up your 20% down without too much problem.

Again the issue that I forsee is adding another debt payment to your already full docket.