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Old 01-29-2020, 10:41 AM
 
Location: Raleigh
9,110 posts, read 6,815,571 times
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Quote:
Originally Posted by Southbound16 View Post
Hello everyone! I'd like a fresh perspective from others. I will keep it short and sweet. For our purpose, a 20% down payment and the student loan balance are the same amount with similar interest rates.

Option A: Buy a house with 20% down and continue paying the minimum on your student loans.

Option B: Pay off the student loans completely and buy the house with 3.5% down and the added PMI.

Ideally, it would be amazing to pay off the loans AND save up the 20% down for the house, but we want to start a family soon and biologically, time is not on our side. Factoring in parental leave, household income will be lower for a few years.

Which one would YOU chose? Thoughts??
Assuming you are going conventional with the mortgage I'd pay the loans off. The PMI can be dropped down the road when there's more equity.
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Old 01-29-2020, 11:43 AM
 
4,301 posts, read 3,467,932 times
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PMI is not necessarily a bad thing. You are paying for something that will allow you to purchase a home with less money out of your pocket. If you have other debts that can be retired with the money not used for the down payment, if the math works, it can be a useful tool. Lots of things to consider but don't automatically assume you come out worse with PMI.
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Old 01-29-2020, 11:53 AM
 
69 posts, read 51,997 times
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Quote:
Originally Posted by SWFL_Native View Post
1 - pay off college debt and any other outstanding debts (cc / other loans)
2 - save 20% for down payment to avoid pmi and establish appropriate equity position
3 - then start family
Quote:
Originally Posted by Jim1921 View Post
I agree with this advice, plus I would add in a step between 1 and 2 in which you would build up an emergency fund of 3-6 months of living expenses.

When you buy a house and start a family, you increase the likelihood of surprise expenses. Do you really want to add financial stress on top of everything else?
I agree this would be the most ideal scenario, but starting a family in our late 30's is something we do not want to do. Pregnancies after age 35 become high-risk. Most of the couples we know that waited that long had to do IVF, something we want to avoid if possible.

Luckily we have an emergency fund and no cc debt. Cars are paid off as well. The bolded part is so true!


Quote:
Originally Posted by Lowexpectations View Post
With less than 14% of tax filers itemizing in 2019 chances are the after tax cost is the same as the stated interest rate on the mortgage
Not sure about mortgage, but for student loans it's peanuts.
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Old 01-29-2020, 11:56 AM
 
69 posts, read 51,997 times
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I appreciate EVERYONE'S responses! Very insightful! Keep'em coming!
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Old 01-29-2020, 12:35 PM
 
1,107 posts, read 343,759 times
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Quote:
Originally Posted by SWFL_Native View Post
1 - pay off college debt and any other outstanding debts (cc / other loans)
2 - save 20% for down payment to avoid pmi and establish appropriate equity position
3 - then start family
1 - This
2 - This
3 - This

You will be miles ahead by doing so, and the postponement required is a relatively short period.
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Old 01-29-2020, 02:57 PM
 
745 posts, read 317,004 times
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Quote:
Originally Posted by Southbound16 View Post
I agree this would be the most ideal scenario, but starting a family in our late 30's is something we do not want to do. Pregnancies after age 35 become high-risk. Most of the couples we know that waited that long had to do IVF, something we want to avoid if possible.

Luckily we have an emergency fund and no cc debt. Cars are paid off as well. The bolded part is so true!




Not sure about mortgage, but for student loans it's peanuts.
I would still put off buying a house until you have the loans paid off and have a 20% downpayment. Perhaps you can consider ways of accelerating debt payment by picking up an extra job and/ or cutting back on other expenses.

Adding more debt with a mortgage, plus risking additional surprise expenses is a recipe for disaster. Many of us have had our first child while living in an apartment. The house can wait.
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Old 01-29-2020, 04:16 PM
 
Location: Silicon Valley
4,207 posts, read 1,908,821 times
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One other thing to consider in the equation OP. While people speak of homes as big surprises, realize you're paying big surprises anyway. Not sure where you live, but take a look at the market in your area. Are prices rising, falling, flat etc. Residential real estate prices don't tend to turn on a dime in most place, but there are trends you can look up in your area to see how they have historically traded. In my native rural SD, the baseline tends to follow new home construction costs less depreciation. It grinds upwards, stalling a bit in slow times and rising a bit faster in good times, but nothing remarkable. Here in San Jose is one of the few markets where residential homes will actually boom and bust. In the .com bust, not just stocks, but home prices went falling down. In the Recession, home prices got crushed. This is part because so much of the city is new, without deep roots, and partially because the housing price/household income ratio is very high...it's just more volatile.



Assuming you live in an area where the housing prices are going to grind up roughly inline with replacement cost less depreciation you may want to figure that % into things. Because rent prices will almost always cover holding costs, all surprises, taxes and a profit margin.



Prices in Chicagoland started recovering a bit slower than the rest of the country, and when I saw movement happening, I convinced my sister we needed to buy. She thought the house was too big and too expensive and her brother was being ridiculous. Just 6 years later she now says that she's so happy that it happened when it did and that she couldn't afford to live in her neighborhood anymore even as a renter. Far from being an unexpected surprise (and there were some) it's now a centerpiece of stability for her. Of course, prior to her being there I used to think anyone paying more than $400 for their share of the rent was insane in Wrigleyville in the 90's.



If I lived in Chicago, I'd still buy. I'd always buy in SD. I'd question things in San Jose, but prices are already dropping. Overall though, you ask any of your parents or their friends how much they paid for their homes a generation ago and it's most likely no more than what you'd pay for a new car now.



Buying the home is the big economic ace there. Doing it with 20% down is more than just an arbitrary number. It tends to work out that someone that can afford to save 20% will be able to pay for their home. 3.5% is too little saved. It increases the costs and leaves you with no options to borrow against equity if you need to. Your also going to be the least competitive bid in the marketplace if multiple people want a home. I'd definitely would sell to a $200K offer that needs conventional financing over a $205K offer that is on an a 3.5 FHA loan. The latter buyer needs everything to go through perfect. The $200K offer has room in case something's not perfect.



But, given the given of = interest rate, don't worry about the student loans yet. get the home, but look at your location. real estate is always local. That means that prices increasing in Garfield Park in Chicago mean nothing if I'm trying to buy on the Gold Coast and vice versa.
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Old 01-29-2020, 05:34 PM
 
3,066 posts, read 2,012,865 times
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I guess my thoughts are different on this subject. It goes against the advice you’ll get here from most posters, but I still think it at least has the potential to financially maximize a person’s outcome. I believe strongly in using leverage.

I wouldn’t (and didn’t) do either. Granted, I didn’t have the money as an option, but even if I had, I wouldn’t have.

I am going to keep my tax deductible student loans rolling. I bought a house and paid PMI. By not saving up for a down payment, I was able to hit high 401k matches with my employer and do other cost savings. I also captured tens of thousands of equity by “getting in the game”. It would have taken years for me to save that money gained on my own. This house appreciation alone would pay for my student loans 2 or 3 times over. Owning a home to capture appreciation is important, but I don’t want my own money to be tied up in a house not working for me. I’d rather invest it early and often.
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Old 01-29-2020, 05:50 PM
 
Location: Florida
6,677 posts, read 3,108,800 times
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Quote:
Originally Posted by Southbound16 View Post
Hello everyone! I'd like a fresh perspective from others. I will keep it short and sweet. For our purpose, a 20% down payment and the student loan balance are the same amount with similar interest rates.

Option A: Buy a house with 20% down and continue paying the minimum on your student loans.

Option B: Pay off the student loans completely and buy the house with 3.5% down and the added PMI.

Ideally, it would be amazing to pay off the loans AND save up the 20% down for the house, but we want to start a family soon and biologically, time is not on our side. Factoring in parental leave, household income will be lower for a few years.

Which one would YOU chose? Thoughts??
Why?
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Old 01-29-2020, 06:11 PM
 
3,066 posts, read 2,012,865 times
Reputation: 6896
Quote:
Originally Posted by Lowexpectations View Post
With less than 14% of tax filers itemizing in 2019 chances are the after tax cost is the same as the stated interest rate on the mortgage
Which is probably why if I had to actually pick one instead of what I said earlier, I would pay the mortgage down to avoid pmi since they’re more likely than not going to get a benefit, but they’d get the student interest deduction for AGI on top of the standard deduction.
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