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Should I buy a house or pay off student loans?

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  • Should I buy a house or pay off student loans?

    Hello Everyone, I am new to this site but have read some great things and was hoping you can help me with a thought I have been wrestling with in my head for the last year. Should I pay off my student loans or buy a house? I'll give you a quick breakdown of my financial situation.

    -26 years old
    -Annual salary of 102k/yr (not including bonuses which usually is around 10-15k/yr)
    -40k in liquid savings (money market, checking)
    -2k in 401k (just recently started, saving 10% each pay period in a target fund with a 6% company match)
    -30k student loans at 6.8% interest
    -6k left on car loan at a low interest rate

    Any advice would be great, I am not the smoothest when it comes to finances, so any advice would be very helpful. Thanks!

  • #2
    Hello, Phillyboy87...

    There are 3 or 4 other key pieces of information that would be needed in order to venture any recommendations. How much would the house cost you? What is your present monthly budget (and what are you paying for rent)? What are your longterm financial goals? And what is the main reason you would be buying that house?

    Let us hear from you!
    Retired To Win
    I blog weekly on frugal living, personal finance & earlier retirement at:
    retiredtowin.com
    making the most of my time and my money

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    • #3
      Thanks for the reply, so I've got preapproved for a house up to 300k but would most likely be around the 250-270 range.

      -Right now I am paying 1525/month for rent but my lease is up in July which is when I would buy a house mainly because I am tired of renting and being attached to other people and would like to settle down somewhere and put my roots down so to say

      -I do not have a monthly budget but usually end up saving 1500+ a month (prob should set one)

      Hope this helps. Thanks in advance.

      Comment


      • #4
        He'll be able to have more than 1500 saved per month, with student loan and car loan payments out of the way. I'd suggest keep squirreling away that, plus your bonuses, into a simple low risk account which will serve as both your emergency fund and your house down payment fund.

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        • #5
          Originally posted by artwest
          I would take $30k out of savings and pay off the student loans today!

          I would then take out $6k and pay off the car loan...today!
          I second this motion. No need to pay extra interest if you don't need to. Don't be givin' away your hard earned money!

          Get a solid 20% for a down payment on the home after paying off the debt and after getting an emergency fund for 6 months. It is the best way to go.

          Comment


          • #6
            Originally posted by AggieLife View Post
            I second this motion. No need to pay extra interest if you don't need to. Don't be givin' away your hard earned money!

            Get a solid 20% for a down payment on the home after paying off the debt and after getting an emergency fund for 6 months. It is the best way to go.
            I agree this is a good plan.

            20% down will help Phillyboy87 not have to pay mortgage insurance. (so it will shave off $100-300 a month on your monthly payment Phillyboy87).
            ~ Eagle

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            • #7
              Originally posted by phillyboy87 View Post
              Any advice would be great, I am not the smoothest when it comes to finances, so any advice would be very helpful. Thanks!
              Hi and welcome phillyboy87!

              1st Develope your budget. Allocate on paper/excel document all your income towards a category of expenses. Track you expenses with www.mint.com

              2nd What can you shave off of your budget? When was the last time you got a quote on your car insurance? Do you have a gym membership you don't use? When was the last time you checked on a better deal on your cell phone plan? How much do you spend eating out each week? How much do you spend on entertainment?
              ~ Eagle

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              • #8
                Digging yourself deeper into debt is rarely a good thing. I really think you should try to pay back a lot of your student loans before you invest in a house. You're still young, so you still have plenty of time to move into your forever home. You should take some time to pay off debt and save some, then buy a house when you've got all that sorted out. Remember, there's no time limit. You have your whole life to buy a house.

                Comment


                • #9
                  Originally posted by phillyboy87 View Post
                  Hello Everyone, I am new to this site but have read some great things and was hoping you can help me with a thought I have been wrestling with in my head for the last year. Should I pay off my student loans or buy a house? I'll give you a quick breakdown of my financial situation.

                  -26 years old
                  -Annual salary of 102k/yr (not including bonuses which usually is around 10-15k/yr)
                  -40k in liquid savings (money market, checking)
                  -2k in 401k (just recently started, saving 10% each pay period in a target fund with a 6% company match)
                  -30k student loans at 6.8% interest
                  -6k left on car loan at a low interest rate

                  Any advice would be great, I am not the smoothest when it comes to finances, so any advice would be very helpful. Thanks!
                  I would pay off car loan first, then start saving for a downpayment.

                  Are your student loans federal or private? If they are federal, I wouldn't worry about them. Just figure them into your monthly budget. With federal loans, there are a lot of options available if you get into trouble in life, unlike a mortgage for example.

                  Keep making 401K contributions.

                  Comment


                  • #10
                    Pay off all your debt before buying a house. I guarantee you are paying more in interest on your debt than you are earning with the $40k in the bank. When you buy a home, there will be more expenses than you think. Pay off your car and student loan ASAP and then take that money you were paying and first build at least a six month emergency fund and them start your down payment account. You think you're just buying a home but you will most likely want to buy furniture, etc. for the home.

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                    • #11
                      Pay off all your debt before buying a house. I guarantee you are paying more in interest on your debt than you are earning with the $40k in the bank. When you buy a home, there will be more expenses than you think. Pay off your car and student loan ASAP and then take that money you were paying and first build at least a six month emergency fund and then start your down payment account. You think you're just buying a home but you will most likely want to buy furniture, etc. for the home.

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                      • #12
                        I'm almost agreeing with your desire to buy a home if there was more information. What is your FICO score? What terms for pre-approved mortgage interest rate? Have you researched the very best interest rates available in your area? Would you get a better deal at a CU? How much will your monthly payments cost principal/interest/taxes? I'm thinking that mortgage rates will increase but at this point you do not have the required 20 % DP necessary to avoid that extra ordinarily expensive mortgage insurance that in some cases can extend the entire term of the mortgage.

                        How do you use your bonus? Does that comprise the majority of your current savings? You need to have at minimum 3-4 months EF to pay basic expenses without falling back on CCs.

                        There as so many added costs to home ownership, like heat, electric, water, sewerage, trash, house & personal effects insurance, HOA, furnishings & outdoor equipment for starters. How does that line up with your current $ 1,525. rent? Would you choose new build or established area considering school ratings and access to services for future salability? You've no experience budgeting and seem to lack experience in year-by-year budgeting. Do you have any of the practical skill sets for small repairs required of homeowners?

                        That's a lot to consider for a June 30th deadline

                        Comment


                        • #13
                          Depending on your area, the real estate prices may be depressed. If you wait long enough to pay off school loan, this may no longer be the case and you will not save any money. Just make sure that the house makes sense for you otherwise

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