Best option

[Dbrown09]

Hi everyone, hoping for some advice on a situation. I am currently selling land that I inherited. The amount that I expect to receive for the sale is around $35,000. My wife and I are also currently looking to purchase our first home as well and the average mortgage that we are looking at is around $200,000-$250,000. We currently have two car loans of around $14,000 and $12,000. A personal loan around $13,000 and two credit cards around $2,000 owed on them. Our total amount we pay out in payments every month is around $1100. I would like to take the money received from the sale of the property and pay off the personal loan (due to highest interest rate), the highest car loan which is (14,000), and both credit cards. This would knock us down to only owing $340 a month which collectively we could pay off the remaining car then in less than a year. My mother which is the side of the family that I inherited the land from who is also listed as part owner because I was to young to accept ownership when everything happened, wants me to put the money towards the purchase of our first home. However this would only lower a mortgage by about $100-$300. Just looking for other thoughts and inputs.

[Jluke]

if you're going to be purchasing a home I think you would want to have extra cash available for that transaction.

Will you have to pay PMI on your new home? that may be reason enough to not put all that 35k towards your debt.

we could definitely use more details, but given what you provided I would think:

pay off the personal loan
pay off the credit cards

then,
buy your house

then,
re-evaluate your situation. I don't see the point in paying off the car loan(s), unless the interest rate is high.

[Nutria]

My mother ... is also listed as part owner because I was to young to accept ownership when everything happened

That makes no legal sense. If you were too young, then she'd have been the custodian, not the part owner.

[disneysteve]

My mother... wants me to put the money towards the purchase of our first home.

Nobody but you and your spouse get to decide how you spend your money. Not your mother. Not your siblings. Not your friends. So just nod your head when others tell you what they think you should do and move on from there.

You've got a bunch of debt. You are absolutely right to clean that mess up first before giving any thought to buying a home. Once the debt is gone (or mostly gone), you can start saving up the 20% down payment you need to buy a home. You also should have a 6-month emergency fund in place before buying the home.

If you can use the inheritance to knock your loan payments down from $1,100 to $350, that frees up $750/month. With that, you can save $9,000/year. You need $40,000-$50,000 to buy the house (plus the EF) so you're probably looking at a few years before that happens unless you also have other money you can put in the down payment fund.

[Nutria]

Nobody but you and your spouse get to decide how you spend your money. Not your mother.

If she's part owner (which makes no sense), she does.

[disneysteve]

If she's part owner (which makes no sense), she does.

No she doesn't. That just means when the property sells, she gets money and he gets money. That still doesn't give her the right to tell him how to spend his share.

[msomnipotent]

If she is anything like my family, she could refuse to sell until he signed a contract stating he will put the money towards a house. Yes, it probably isn't enforceable, but it would screw up the sale and possibly cause lawyer fees and a court order to force the sale. At least, that is what my family would do.

[msomnipotent]

My advice is to wait until the sale actually happens and you get the money in your account before you make plans. Then, pay off the highest interest loan and the credit cards. Play with a credit simulator to see if paying off the other loans would affect your credit. Keep a few thousand for closing costs or an emergency fund.

Have you talked to a mortgage broker to make sure that you can qualify for a home in the price range you want?

[bjl584]

I don't think you are ready to buy a house.

Pay off your debts with the land sale, then begin saving for a house.

[Dbrown09]

I do apologize, I meant she is currently custodian of the property. Financially we are in a position where we are able to purchase a house without being too limited with any money leftover for the unpredictable. My main question I guess to simplify it is would it be best to put the money from the sale of the land towards a down payment which would not be enough to prevent a pmi and would lower the payment by maybe $200. Or would it be better to take the money and basically eliminate pretty much all current debt so that when we find a house that we are interested in buying, the new mortgage would basically be our only debt we would have.

[disneysteve]

My main question I guess to simplify it is would it be best to put the money from the sale of the land towards a down payment which would not be enough to prevent a pmi and would lower the payment by maybe $200. Or would it be better to take the money and basically eliminate pretty much all current debt so that when we find a house that we are interested in buying, the new mortgage would basically be our only debt we would have.

Far, far better to pay off the current debt before you go out and take on a whole lot more.

[kork13]

With that clarification, I agree that your best option will be to sell the land, pay off as much of your debts as possible. Use the money you no longer have to pay in debt payments & focus it toward your last car loan. After that's gone, take all of that money & save it up for a good down payment... At about $1100/mo, you'll be able to save up your down payment in relatively short order, probably just a few years. You want a full 20% DP if at all possible so that you can avoid paying PMI.

Last note, your mother has no control over how you spend your money. Do what you think is best for your family -- you've got a good plan, so follow it!

[snafu]

Like your mom, I like the idea of using the money from the inheritance as downpayment for something tangible with possibility of creating long term value like a house. However, the information you've provided and information missing creates barriers to that plan. We don't know your job stability, gross and net income and expectations for the next 5 years, crucial details in home ownership.

Do you live in a high cost of living zone? Do you know that mortgages are primarily based on income stability and FICO score? The rules require a minimum 20% downpayment, which translates to $ 40,000. for a $ 200,000. home; bumped to $ 50,000. for a $ 250,000. home. Can you see the problem? If you can't meet the 20% minimum, you are required to buy very expensive mortgage insurance that adds to the monthly costs with no benefit to you.

I don't know your current accommodation but buying a house is like an invitation to vendors to help themselves to your money. As part of an offer to purchase, you must hire a qualified house inspector to confirm the house meets code, particularly areas not readily visible, an appraiser to confirm all details of the property are correct and a lawyer to verify all paperwork and 'file documents.' Even new builds can be a money pit.

Besides the cost of moving, utilities often add a 'deposit' to new accounts heat, electric, cable, water, sewerage, trash/recycle. Your 'mortgage' payments increase substantially when you include interest, municipal taxes, PMI, homeowners insurance and HOA [if applicable].

Of course a SF house's landscaping needs endless equipment and products. Your wife will expect window coverings, furniture, nice appliances and decor. As a home owner, anything that needs repair needs your attention, arrangements and shocking amounts of $$$$$.

The silent monster in the plan is the debt you have already accumulated. $ 43,000. is substantial! What are the KBB values of each vehicle? What interest rates? How much money flew out the door in just interest January - September 2017? When will you be debt free?

If you examine a mortgage amotorization table you will discover for the first half, nearly all the mortgage payment goes to the pre loaded interest, hardly anything goes to principal, quite different than a personal loan. Will you be house poor? How much control of your lives shifts to loans and debt holders? If you skip a payment, interest rates increase...they increase if you're a few days late! It can get really ugly, really fast.

I keep looking at the bare bones fact that the inheritance you look forward to receiving will not pay off the personal loan, two vehicles loans and two credit cards. This is a good time to look at your financial future. What action are you both willing to take to clear debt and manage your money to best benefit you?

[sorry so long, I'd written this early this AM before your clarification but somehow it didn't go.

[Dbrown09]

Thank you for your insights. As far as credit, income and stability and everything goes. Between my wife and myself we bring home over $80,000 a year. The money we would receive would pay off the personal loan, car loan and both credit cards so we would have her car payment remaining which we could pay off in 6 months or less. Interests on the car is about $30 a month per car loan. We don’t live in a high cost of living area (western Maryland) so we do have that to our benefit. As far as the costs for new home ownership, my wife’s uncle owns his own contracting business and her uncle owns his own home inspection business and our families actually collectively buy us a piece of furniture for things like Christmas as long as we keep the cost/ price at a certain amount to assist us with already owning furniture for our new house.

As far as the reason why there has been a delay in paying off our debt already, we just recently got married (July) so most of our concentration and extra money was focused on that. I really do appreciate everyone’s advice/feedback

[scfr]

I may be reading too much between the lines, but are you saying that you are planning to charge on ahead and buy a home ASAP, whether the money from the inheritance goes to pay down the current debt or whether it goes towards a down payment?

Because my advice, which is probably not going to be what you want to hear, is that you need to pause and take a deep breath, wait before buying a home, and take some time to take stock of your overall financial situation.

What was the reason for the personal loan? What was the reason for the credit card debt? And what was the rationale for owning 2 kind of expensive cars with high car notes? Because unless I'm missing something, it sounds like you are trying to live a lifestyle that is beyond your means.