Pay down student loans or beef up our down payment? (real estate market, mortgage)

[LegalDiva]

I'd definitely pay off the loans. As another law school grad, I came out with significant debt and aggressively paid down a lot of it before buying my condo a few years ago. The interest rates on private loans, in particular, are higher than most interest rates you would pay on a mortgage (6-8% v. the average 3-4% now). Moreover, its nice to not have the albatross around your neck if things get financially tough in the future. Student loans, as you probably know, are not dischargeable in bankruptcy, so you are better off paying them now.

And dont listen to those people who are rushing you to "buy now!". Unfortunately for me, I followed that advice when I bought my condo, knowing if I had waited a little more, even another 6-8 months, I would have saved another 10% extra toward the DP and avoided PMI..but hindsight is 20/20. Interest rates aren't going to jump back to 5.5%+ overnight and I doubt it will by next year either.

Pay down the loans. Take your time with house-hunting. Save money now so you have a nicer DP to play with when you start making offers.

-my 2 c.

[dman72]

Originally Posted by InfoSeeker52

The interest rate on the student loans is 6.8%.

If we aggressively save, we could probably have a 20% down payment plus closing costs ready to go by around this time next year. If we were to focus on the student loans instead, we'd have to save for an additional year to have the 20% down payment ready. My husband's had friends telling him we should be buying rightthisverysecond, because "the market will never be lower!" but I'm leery of rushing into home ownership when we still have a significant debt obligation in addition to any mortgage that might be added to the list. On paper, home ownership will only cost us $500 or so more than renting currently does, but I know all of the things that can go wrong in a home and add to costs, and I'm concerned we'd be getting in over our heads. My H disagrees, obviously.

If you can pay down $100K plus save up 20% for a downpayment in one year, you must really have landed that dream job.

I'd go with your take on things as opposed to your husbands.

If you don't have any kids, why saddle yourself with this obligation? 6.8% > 3.5% plus $300 or so in PMI, which is basically the same effective payment as a 5% interest rate. The mortgage still is less expensive in terms of money flushed down the toilet, ie not going towards principle.

[okellies]

Pay those loans off! Believe me, if I had my dream job (or won the lottery), I would be writing Sallie Mae a check for
them to leave me alone forever.

Plus, PMI is a killer if you don't have 20% down.

As long as you know this is a forever dream job that will be there in a year, pay those loans off.

[Zytos]

Originally Posted by dman72

If you can pay down $100K plus save up 20% for a downpayment in one year, you must really have landed that dream job.

Yeah. You found an associate gig out east in Suffolk allowing you make that bank? Are they hiring? EDIT: I misread your post. Still, if it's not NYC Biglaw, tell me.

[InfoSeeker52]

The "dream job" is definitely going to be there for at least 3-5 years, which is enough time to both pay off my loans and pull together a down payment, so the question for us is really more about what order to do these things in. I know my H is itching for a home of our own in a way that I am not - he is about five years older than I, so his friends are all in the buy-a-house-and-reproduce-ASAP stage, while I'm just not really "there" yet. That said, I do understand his concern that waiting two years (instead of one) would lead to us paying more for a house, since the market in our preferred areas does seem to be rising (I've been tracking home prices in our target communities for a year now). I guess I'm just not sure how much difference a year will make, and am worried that buying before paying off the student loans will put us in a position where the house ends up eating up money intended to pay the loans down.

You've all given me good things to think about and talk over with him, so thank you!

[InfoSeeker52]

Originally Posted by Zytos

Yeah. You found an associate gig out east in Suffolk allowing you make that bank? Are they hiring? EDIT: I misread your post. Still, if it's not NYC Biglaw, tell me.

It's NYC Biglaw. Sorry. :-)

[manhasset hills1]

You should pay off your loans because you don't have any financial obligations right now such as kids or house payments. Once you buy a house, your expenses go way up because its not just the mortgage payments but also the furniture you have to buy, escalating real estate taxes. And then when you have a child it will be even harder to pay off your loans. If you want to compromise then, spend 75% of your bonus on paying off loans and 25% towards your down payment.

[Zytos]

Originally Posted by InfoSeeker52

It's NYC Biglaw. Sorry. :-)

You may be on a similar path I was, 5 years ago? Graduated from law school and started at biglaw at 24, got married, paid off $90k debt over 1-2 years, saved for down payment by 2.5 years after starting.

I guess that's the way to do it? Though I can't predict the future re: 30-year mortgage rates. And also my wife is the same age as me, so we were on the same page.

[LIgirl74]

I say pay down your loans. Once you are in a house, it's difficult to pay down loans, credit cards, etc. Right now I'm carrying approx. a $2500 balance on a credit card and it's killing me that I can't pay it down. It's not a huge amount but being we have the mortgage, daycare (which is almost like a mortgage payment in itself), lipa, national grid, Verizon, life insurance policies, etc..it's making it difficult to pay it down. Hopefully our refi will help us with money but when paying for daycare as well..it eats up almost all of your extra money. This is why I say try to pay down your loans prior to buying a home...unless you are making like $250k or $300k...then I say go forward with the downpayment. Good luck to you.

[InfoSeeker52]

Originally Posted by LIgirl74

I say pay down your loans. Once you are in a house, it's difficult to pay down loans, credit cards, etc. Right now I'm carrying approx. a $2500 balance on a credit card and it's killing me that I can't pay it down. It's not a huge amount but being we have the mortgage, daycare (which is almost like a mortgage payment in itself), lipa, national grid, Verizon, life insurance policies, etc..it's making it difficult to pay it down. Hopefully our refi will help us with money but when paying for daycare as well..it eats up almost all of your extra money. This is why I say try to pay down your loans prior to buying a home...unless you are making like $250k or $300k...then I say go forward with the downpayment. Good luck to you.

What makes you say that last part? (Our combined gross salaries will be in that range.)