U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Economics
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 01-28-2020, 03:28 PM
 
69 posts, read 51,997 times
Reputation: 65

Advertisements

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??
Reply With Quote Quick reply to this message

 
Old 01-28-2020, 03:34 PM
 
2,046 posts, read 518,919 times
Reputation: 3142
Pay the student loans off. Then save until you have 20% down payment on house. Rent a house in the meantime if need be. Housing prices are through the stratosphere in many areas. You will have better buying options within the next year or so.
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 03:35 PM
 
19,880 posts, read 14,499,231 times
Reputation: 15281
You can start a family without buying a house so that’s the first thing. Second it doesn’t sound like you have the 20% right now is that correct?
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 03:45 PM
 
69 posts, read 51,997 times
Reputation: 65
Quote:
Originally Posted by heart84 View Post
Pay the student loans off. Then save until you have 20% down payment on house. Rent a house in the meantime if need be. Housing prices are through the stratosphere in many areas. You will have better buying options within the next year or so.
Quote:
Originally Posted by Lowexpectations View Post
You can start a family without buying a house so that’s the first thing. Second it doesn’t sound like you have the 20% right now is that correct?

House rentals where I live go for about 3-3.5k monthly. So if we stay renting, a 2-bedroom apartment would be the best we'd get. I already have several people telling me how much money we're "wasting away" by renting. I see the pros and cons to both. Main reason we want to buy (besides building equity of course) is for peace and quiet (no shared walls or space). Especially if we're throwing in babies/small children into the equation. I know how much of a nuisance that can be in shared rented space for all involved.

We're expecting to have the full amount by end of 2021 and the first child arrive by mid 2022.
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 04:00 PM
 
6,150 posts, read 3,306,136 times
Reputation: 11175
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
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 04:59 PM
 
1,311 posts, read 620,511 times
Reputation: 1462
What's the after tax cost of the interest on the student debt vs. the after-tax cost of the mortgage and pmi?
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 06:21 PM
 
19,880 posts, read 14,499,231 times
Reputation: 15281
Quote:
Originally Posted by SuiteLiving View Post
What's the after tax cost of the interest on the student debt vs. the after-tax cost of the mortgage and pmi?

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
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 06:33 PM
 
744 posts, read 316,784 times
Reputation: 868
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
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?

Last edited by Jim1921; 01-28-2020 at 06:56 PM..
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 06:47 PM
 
1,311 posts, read 620,511 times
Reputation: 1462
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
Always have to ask the question though.
Reply With Quote Quick reply to this message
 
Old 01-28-2020, 08:13 PM
 
Location: Silicon Valley
4,198 posts, read 1,906,150 times
Reputation: 6999
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??

If the cost of the home mortgage and student loan debt are the same, then the answer is to keep the student loans and put 20% against the home. By going with the 3.5%....all you've succeeded in doing is making your loan on both more expensive.



Student Loan (5%) Was 20 Now 20
Home Loan (5%) Was 0 Now 80
Total Debt at 5% = 100


3.5 Method
Student Loan (5%) Was 20 Now 0
Home Loan (6.5%) Was 0 Now 96.5
Total Debt at 5% = 0
Total Debt at 6.5% = 96.5 (~100 if true apples to apples)



The combination might lower your monthly payments slightly, but it increases your expense. Home loans now tend to run in the 4% range, so adding 30% to that cost is a really big penalty. So I'd go with the top method given the choices.


In reality, student loans, at least for me, were much higher. All during college I kept getting more cards for the promo items. Unlike my daytrading classmates I was pretty good about paying them off, or taking a free advance on one to pay off all the others. My credit score went up...and I got more cards. My first real use of them came as I realized the tax deductible nature of the interest didn't matter nearly as much as not having to pay it. In those days advances were cheaper, but the time at 0% was shorter as well....but I basically juggled the entire student loan balance onto credit cards. As one rate would expire I'd get a new cash advance on a different card and use that money to pay it. You had to be organized, have a backup card and don't trust Bank of America (who likes to get you when you have a high balance) but I basically dropped my interest rate on the entire balance to about 2% a year vs 8.5% the standard loan called for.



Today they use 3-4% of the advance amount, so the savings isn't likely as great. It also can really hurt your credit if you utilization is up too high both overall and on individual cards, so play that game after you get the home.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply

Quick Reply
Message:


Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Economics
Follow City-Data.com founder on our Forum or

All times are GMT -6.

© 2005-2020, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top