New Year New Budget Plan

**kork13** · 01-19-2014, 01:57 PM

To answer your immediate question, no -- having the student loans & car loan will not necessarily prevent you from getting a new mortgage for your next home. However, less debt is always better, and it is advisable that you start making payments on the student loans before applying for the new mortgage, because you'll want to show a stable payment history on all of your debts. I'm assuming that your car loan & mortgage (and previous CC's) are all current and have always been paid on time & in full... If that is not the case for anything, it may make a new mortgage more difficult.

Do you plan to sell your current home before or after buying the new one? On your present income, it is somewhat unlikely that you would be able to get a new mortgage while still carrying your current mortgage -- the debt-to-income ratio would just be too high. You will probably need to sell your home first. (others may have a different view of this--I haven't sold a home & bought a new one yet, so I'm not speaking from experience)

How much are you looking to spend on the new home? Do you have positive equity in your current home? Are you including that in your estimate for a $20k-$30k downpayment, or would that be additional? Will that $20k-$30k DP be at least 20%? (if not, you should rethink your plan)

One more question, since you don't mention anything about it... What do you currently have in savings, whether in Retirement accounts, Emergency Funds, or otherwise? Are you saving for retirement at all yet? How old are you both? (okay, that was 3 questions

) If you aren't saving for retirement, that needs to be a priority before saving for a new home's downpayment. Also, if you don't have an Emergency Fund (at least 3 months' expenses, preferably 6 months), that needs to be a top priority.

Otherwise, your budget looks pretty good, if that's everything that you normally spend each month. I don't see anything there for discretionary/household/eating out/entertainment costs, but assuming those are fairly minimal (if non-existent), you seem to be doing well. Assuming that you ARE saving for retirement & have an EF (if not, do these before anything else), I would recommend that you pay off your car loan in the next 3 months (5% interest is a bit high), then after that save up for your downpayment, which would take another year or so. Whatever you want to save for your DP, save at least 10% more. As you probably already know, buying a house is expensive and has alot of ancillary costs associated with it.

**ourfirsthome** · 01-19-2014, 02:09 PM

Thanks for the reply.

Yes, we are current on everything. Never have missed a payment before. We plan on selling our home before we buy our new one. I'm not sure what our home is worth, but it came out around 97k when everything was all said and done when we bought the home. We were going to shoot for around 150k for our next home which we would use the 30k as a 20% down payment. In my 401k I have around 10k and put 3% in every check which my company matches 100%. I'm 27 and she is 25. Right now we have 1500 in an EF which I'm seeing should be higher from what you are saying. We're planning on paying off the car loan next. We were thinking of then putting all money towards saving for the next home because the student loans don't require any payments yet.

**riverwed070707** · 01-20-2014, 06:45 AM

Whats wrong with the current house? You have a lot going on. Try not to do it all at once - finishing school, paying off debt, buying a new house, having a baby...

You've made great progress on your debt and I think you should try really hard to see past the excitement of a new house and focus on paying down the rest of your debt, building savings, getting an investment portfolio going and getting on track for retirement while you have the extra income to do so. One kid rarely warrants a bigger house. I could understand if you were in an apartment and wanting to buy a house, but just a bigger house? Seems like one of those things that you'll regret later when you're still paying student loans 10 years from now and realize you could have knocked them out in a couple of years if you'd just stayed put. Your retirement savings are low for your age and your efund is not sufficient -- even if you were dead set on the house, sounds like it will be a while before you have the savings to make the switch.

**klarose** · 01-20-2014, 07:18 AM

I agree with the above poster.

Hold on just a little more before you buy a new house!

In 3 and a half months you could pay off the car loan, and get your EF up to $5,000.

Then you could start putting $2,000 a month in a house fund, and putting $700 towards debts.

That is what I would do. Those students loans may not have to be paid right now, but they are still adding interest every month. So the sooner you pay them off the better.

**jpham540** · 01-20-2014, 08:23 AM

Yeah, I will have to agree with the other poster too. You need to increase your emergency fund since you�re expecting a baby. You should keep your current house you�re staying in until you pay off your debt and student loans. Also your wife will probably not work after the baby is born for awhile, so are you ready not having your wife income?

**ourfirsthome** · 01-20-2014, 08:37 AM

The only thing wrong with our current home is the sq. footage

and no basement here. These are some good things to consider. I'm not sure how long it'll take to pay off all student loan debt + save for a down payment (though it seems more logical to do).

A lot to consider trying to figure out where to go to from here.

**riverwed070707** · 01-20-2014, 09:18 AM

Originally posted by ourfirsthome View Post

The only thing wrong with our current home is the sq. footage

and no basement here. These are some good things to consider. I'm not sure how long it'll take to pay off all student loan debt + save for a down payment (though it seems more logical to do).

A lot to consider trying to figure out where to go to from here.

Point being most people overestimate how much space they need for a kid, especially an infant. Does the house have 2 bedrooms? If so, I'd be willing to bet its just fine. We spent from the time DD was 15 months to 4 years in a 625 square foot house becuase it allowed us more time at home with her without having to stress about money. I can't imagine ever looking back and thinking "man I wish I would have bought a bigger house and newer car even if it meant less time at home". In the long run, a bigger house isn't going to be what matters about your first years with your kids. Also, how are you covering medical expenses from the birth? I had great insurance when I had DD but it sure cost more than $1,500... Will your wife continue to go to school after baby is born? If she takes a semester off, its likely you'll need to start paying on her loans. If you have so much left over each month, why aren't you cashflowing your school expenses? No reason to be taking on more debt when you don't need to.

Don't take the advice ot mean you have to pay all your loans before you buy a house. I don't think that's true at all. You just have so many big pieces in play that I think you should slow it down and not try to do it all at once.

**ourfirsthome** · 01-20-2014, 10:51 AM

The house we currently own is about 850 sq ft and 3 bedrooms, but no basement. For medical expenses we have to save more for that and have been paying any visits as they happen. We both understand that the best scenario would be to pay off the student loan debt before we move, it just seems hard when we feel like we're running out of space here.

Can we get some ideas for reaching these goals (such as numbers)? What would be good amounts to have saved in an EF, and any other areas before we decide to move? I think this could help us write up a new budget for ourselves and at least have some different goals to make to put us on the right track before we sell this home.

Also how do you keep yourself on track to stay in a home when you are desperate to move

? We've both just feel we've outgrown this home with our dogs and now soon to be baby on the way.

Thanks again everyone!

**riverwed070707** · 01-20-2014, 11:33 AM

Originally posted by ourfirsthome View Post

Also how do you keep yourself on track to stay in a home when you are desperate to move

? We've both just feel we've outgrown this home with our dogs and now soon to be baby on the way.

Lots and lots of outside time

How long before you're both done with school? How will that impact income? You have a decent income for students so I'm guessing school is PT? You should aim for 3-6 months of expenses in your efund. You should also try to work up to both of you contributing 15% of your GROSS income to retirement funds. A general rule of thumb is that you want to have 1x your salary in retiremetn by 30. I think thats a very obtainable goal for you if you make it a priority. I feel your pain on the small house but you could make some really huge strides toward a solid financial future if you stay put a bit longer.

**ourfirsthome** · 01-20-2014, 12:03 PM

We have both been going to school full time and working full time, but with the baby on the way we are going to be changing to going to school part time so I'm thinking a few more years to finish our degrees. 3-6 months EF sounds obtainable to do. The staying put is going to be the hard part.

An option we were just talking about to get rid of our student debt would be my wife taking a break after this spring semester, and we would work on paying off all of her loan. My work will cover 4k of schooling a year so I can plan on only taking the amount of classes that will equal to 4k a year which will result in us not accumulating any more student debt for the time being. I think that this might be a good option for us, what do you think?

**snafu** · 01-20-2014, 07:16 PM

ah, the dogs, what breed? what size, not Shih Tzu size I guess. Newfoundlanders? Irish Wolfhound?

**ourfirsthome** · 01-21-2014, 01:06 AM

Two big dogs

New Year New Budget Plan