Hi,
What are your thoughts?
What are your thoughts?
Pay off your student loans first. Otherwise your cash flow will be very tight if you add a mortgage on top of that. Plus when you own a home, the furniture, appliances, running, maintenance and repair costs can be significant. My water heater just rusted out so I had to replace it for $450. Then my A/C quit so I got a new one for $4300. If you're already up to your eyeballs in debt payments for student loans, mortgage, car payment, etc, how will you be able to pay for these things when they inevitably break?
As others noted, depends on the circumstances; balance of loans, earnings, stability of ur job, family situation, etc.
I think it's possible to do both. What I took into consideration is rent. In Some areas rent is just insane, sometimes you can buy a modest place and pay less in mortgage compared to rent. If you have a bit of money saved up, I say use some of it for a down payment to buy a little place that will cost you around 33% of ur net monthly income, dump some into ur student loans, and make sure u keep at least three month of reserves in case you lose your job.
Exactly. That's why you need to pay off your student loans first. After you have paid them off, you will free up an extra $2100-$4000 in cash flow to save for a downpayment. $4000 x 10 months = $40,000. $4000 x 20 months = $80,000. So it won't really take that long. Then you can get a mortgage with a monthly payment of $2500 and still have $1500 in spare cash flow for home maintenance and the other added expenses of owning a home.Around $1500. I called up my bank to ask for a mortgage pre-approval and they said that I need to put down at least 20% cash as down payment because my income : debt ratio is too high. Where am I going to find 20% if all my income goes to rent and student loans??????? They said if I don't put down 20% then my monthly payment could be around 2500 - 3000 dollars
Exactly. That's why you need to pay off your student loans first. After you have paid them off, you will free up an extra $2100-$4000 in cash flow to save for a downpayment. $4000 x 10 months = $40,000. $4000 x 20 months = $80,000. So it won't really take that long. Then you can get a mortgage with a monthly payment of $2500 and still have $1500 in spare cash flow for home maintenance and the other added expenses of owning a home.
Imagine this scenario. You are working hard, full time and use all your spare funds towards loans .. 3 years later you lose your job. You now have zero assets. With a house you can sell it and recoup most of your money you put in, and under PAYE program you will have a $0 loan payment.
[/QUOTE]In this scenario, he would have reduced his debt loan and therefore, he will be paying less interest.
If you sell a house in 3 years, most likely you will not make any money. Buying and selling a house will cost you 10%. Maybe if you had purchased a house in 2012!
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My monthly minimum payment is $2100, for 10 year standard. My price range for a house is like around 400-500K. Should I consolidate my student loans? It would cut down my payment to at least $1000 but I have to pay for 25 years instead of 10.
For people who are suggesting paying off your loans first, at what point did you buy a house (ie when your school loam was at $0)? I have about 90k in pharm school loan left and would like to consider buying a house at 200k maximum - is that pretty doable?
Very good post here. I have yet to understand how people believe buying a house is an investment. It might be but it takes years. The op has to know to get the tax benefits he has to itemize. You buy the house now and sell it in a few years you will be happy to break even . Dont forget you have to pay abt 6 percent of sell price to realtor in most casesYou will spend more money on your mortgage payments than you save from tax benefits. Here's an important life lesson: never take advice from ANYBODY unless they are an expert in that field. Your co-workers, your family, your friends, let's face it, they're just average people and average people don't know much about anything. Never trust conventional wisdom because it is rarely backed by nuanced thought. Definitely don't buy a house to make someone else happy. It's your life and you live with the consequences.
Purchasing a house is not the guaranteed investment that people think it is. Your house may not gain value for years. It may lose value. It can be a gigantic liability, you never know when something may break. You have to pay taxes, insurance, maybe even a HOA fee.
People who saying renting is just throwing your money away aren't looking at the big picture. One, you didn't "throw your money away" on rent any more than you did on paying your water or electric bill, or by buying food. You purchased a place to live that month. Buying a house makes sense when you are ready to settle down, and I mean for good. I have owned my house for eight years and barely have any equity in it due to the poor market. That's eight years. If I sold it today, after taxes and paying a realtor, I'd be lucky to break even.
Again, you have to examine your personal circumstances and goals before making a decision. Maybe speak to a professional financial adviser and tell everyone else to mind their own business. For me, I would absolutely not consider buying a $500k house when I am already spending $2000 on student loans. $3000/month for a house seems outrageous.
You could just wait until after the next 10-20 year bubble bursts, or move to a less expensive area.But but but..what if price keeps on going up and he will be priced out once he has paid off his student loans?!
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You could just wait until after the next 10-20 year bubble bursts, or move to a less expensive area.
You explained it very well. Few people know during the first few years most of the money goes towards interest. You forgot to add hoa. It could be abt 200Make sure you understand how tax deductions work.
Scenario A
This is your current situation where you rent for $1500/mo x 12 = $18k/yr
Scenario B
Say you get a $400k 30 year 3.5% mortgage. The monthly payment is $1,796.
You also pay $5k in property tax, and $2k in insurance (not tax deductible), so your total housing PITI monthly payment is $2,379.
So you're already paying more outright to own a home because they're more expensive than renting an apt:
$2,379 x 12 = $28,548 + all the other home ownership costs I mentioned before.
In the first year, you pay around $400k x 0.035 = $14k in interest which you can deduct + $5k property tax = $19k.
But this only reduces your taxes by 28% = $5,320.
You also have to compare to the $6,300 single/$12,600 married standard deduction. Basically you have to add the $19k interest and property tax to your other deductions like state income tax and donations, and you really only benefit from the amount that exceeds the standard deduction.
Anyway, $28,548 - $5,320 = $23,228 net, which is still more than the $18k you spend renting.
As for 'throwing away money on rent', when you own a home, you're still throwing away:
$14k interest + $5k property tax + $2k insurance - $5,320 tax reduction = $15,680 + other home ownership costs. This will very likely exceed the $18k in rent as well.
You will spend more money on your mortgage payments than you save from tax benefits. Here's an important life lesson: never take advice from ANYBODY unless they are an expert in that field. Your co-workers, your family, your friends, let's face it, they're just average people and average people don't know much about anything. Never trust conventional wisdom because it is rarely backed by nuanced thought. Definitely don't buy a house to make someone else happy. It's your life and you live with the consequences.
Purchasing a house is not the guaranteed investment that people think it is. Your house may not gain value for years. It may lose value. It can be a gigantic liability, you never know when something may break. You have to pay taxes, insurance, maybe even a HOA fee.
People who saying renting is just throwing your money away aren't looking at the big picture. One, you didn't "throw your money away" on rent any more than you did on paying your water or electric bill, or by buying food. You purchased a place to live that month. Buying a house makes sense when you are ready to settle down, and I mean for good. I have owned my house for eight years and barely have any equity in it due to the poor market. That's eight years. If I sold it today, after taxes and paying a realtor, I'd be lucky to break even.
Again, you have to examine your personal circumstances and goals before making a decision. Maybe speak to a professional financial adviser and tell everyone else to mind their own business. For me, I would absolutely not consider buying a $500k house when I am already spending $2000 on student loans. $3000/month for a house seems outrageous.
.....or mow the lawn, plant flowers, trim your trees, fix your fence? No? Then they shouldn't have a say in whether or not you buy a house.
REPAYE limits the monthly payment to 10% of discretionary income with (taxed) loan forgiveness after 25 years of qualifying payments.
What is the incentive to aggressively pay down $200k of student loans under the standard plan?
I bought a house, but everyone's situation is different.
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Because you qualify for PSLF....after 10 years everything is forgiven and you don't need to pay taxes on the forgiven amount. It doesn't make sense to pay more than you need to. That is a sweet deal.