Paying extra money to student loans or save up to buy a house?

[RealRX]

Hi,

What are your thoughts?

---

Members don't see this ad.

 

[Z-Qualizer]

There are a lot of factors to consider, but I'd lean towards paying off/down the loans first. Then you can save up for the house you really want.

 

[PharmtoCS]

I would pay off the loans first before buying a house. With the way the job market is going right now, you do not want to be stuck with extra payments that you cannot afford if you lose your job.

 

[pezdispenser]

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?

 

[RealRX]

I'm just trying to weigh my options. I'm also factoring the tax breaks I can get if I decide to purchase a home.

 

[Sugoi Travis]

Student loans for sure.

 

[steveysmith54]

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.

 

[idatarx]

check out reddit's finance section. Lots of good stuff there.

i'd agree with others here. multiple factors to consider, but i'd aim to decrease the student loans first. Job stability is huge.... moving w/o having to sell a house is so much easier than moving and having to deal with a house.

 

[rph3664]

Pay off the loans.

 

[PharmDoReMe]

I would definitely Wanna pay off the student loans first. Live frugally for at least a few years, pay off the debt, then save up for a place.

 

[PharmDBro2017]

How much in student loans OP?

 

[Dalteparin]

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?

I agree. For your first house, chances are you'll need to purchase at least one major appliance and Murphy's Law is that within a few months of moving in, one of your major appliances will crap out on you. When my spouse and I bought our first home, we had to buy a refrigerator and a washer/dryer and three months later the dishwasher needed to be replaced. Plus you have all your home maintenance costs to deal with; if the roof leaks or the pipes break, that's on you. If you don't have loans it will be easier to deal with all this stuff.

 

[gwarm01]

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.

This makes sense. If you are in an area with a great job market where you would want to live for a very long time and can get a house at a low price, maybe it's the right move.

I have a pretty inexpensive (~100k) house that I purchased in undergrad. It's affordable, but I'd rather not have it because it's in a city with a pretty bad job market. If I were to lose my job or decide to move I have to deal with renting it or selling it. Personally, I'd rather have the freedom to move anywhere.

 

[BMBiology]

How much student loans do you have? What is the price of the house?


Sent from my iPhone using SDN mobile app

 

[sosoo]

save to put down on a house.. 1) better than putting in rent. 2) home value will increase. A LOT! then.... while making monthly mortgage,, put extras into student loans..

 

[RealRX]

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.

 

[PharmtoCS]

How much are you paying in rent right now?

Sent from my SM-N910V using SDN mobile

 

[waiter]

I am in the same situation. I reconsolidated and signed up for REPAYE so my payments are much lower now. Saving for a house.

 

[RealRX]

How much are you paying in rent right now?

Sent from my SM-N910V using SDN mobile

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

 

[owlegrad]

Holy crap, you would have to finance about 450k at 5% to even BEGIN to pay 2,500 a month! (assuming 30 year mortgage)

Having said that, you can definitely find someone who will loan you a mortgage without paying 20% down. Although it doesn't seem like an especially bright idea to me, lol

 

[lord999]

So, you've got some problems (assuming that you are self financing and not taking into account your spouse's income). One of them is that you'd have to take a nonconforming "jumbo" mortgage loan (for most areas except CA and DC, it's around $300k to be conforming). Another is that even by restructuring your student debt to 25 years, that's a second mortgage. Third is the slight problem now that most pharmacies are downsizing and that by you not having a job, you would be both bankrupt from the house and the student loans. That's a lot of personal risk even if you are spotless with every other debt.

If you're making more than $100k take-home, it's doable. But with the standard take-home being between $60k ($105k gross) to $90k ($140k gross) for most pharmacists, that'd be tight considering other obligations.

But considering that the market is possibly at peak, it might be time to just wait anyway.

 

[sakigt]

If you cant afford the minimum payment on a 10 year student loan repayment + the house you cant afford the house.

Run the finaid.org calculator and see how much you pay in total paying 10 years vs 25. Its NOT worth it

 

[BMBiology]

There is a lot of pressure to buy especially now that you are "successful" pharmacist. You gotta show it right and post the picture of the house on FB right?

Here are a couple of scenarios:

- best case:

* housing continues to go up and you make some money. You are glad that you had purchased a house before you got priced out like your friends.
* you keep on working and while your cash flow will be tight, you hang on and continue to pay off your mortgage and student loan
* you budget your money carefully as you will be living paycheck to paycheck.
* you meet someone who loves you and wants to live in the same city

Worse case:

* housing stalls or goes down
* after you factored in the cost of buying and selling a house, property tax, mortgage interest rate, maintaining a house, you realized you are not going to make any money at all. You may even loss money.
* you got laid off and need to move to another city or you will lose the house and fall behind on your student loans. This would destroy your credit score and will prevent you from buying a house in the near future.
* you fall in love with someone but she wants to move closer to her family.

Do you feel lucky?


Sent from my iPhone using SDN mobile app

 

[gwarm01]

It sounds like you have a ton of student loan debt and are looking at a very high mortgage. I would just bide my time and pay off the student loans. You don't need to buy a house, but if it's something you really want then it will be worth waiting.

 

[SmallCapPharma]

I'm going to say the opposite of everyone. Buy a house and pay the mortgage off asap. Paying a mortgage is similar to putting money in your bank.

You will have a tangible asset that has value to other people besides yourself...while your loans don't.

PAYE program will take 10% of your income. Use the rest for the mortgage.

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.


Sent from my iPhone using SDN mobile

 

[pezdispenser]

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.

 

[BMBiology]

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.

But but but..what if price keeps on going up and he will be priced out once he has paid off his student loans?!


Sent from my iPhone using SDN mobile app

 

[BMBiology]

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.

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!




Sent from my iPhone using SDN mobile app[/QUOTE]

 

[SmallCapPharma]

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!




Sent from my iPhone using SDN mobile app

[/QUOTE]

I didn't say make profit upon selling. I said recoup most of your money back.

Also, debt load will remain at 10% of income with PAYE with forgiveness at 20 years. You will pay the same or most likely less with a tax bomb and loan forgiveness.


Sent from my iPhone using SDN mobile

 

[BMBiology]

I didn't say make profit upon selling. I said recoup most of your money back.

Also, debt load will remain at 10% of income with PAYE with forgiveness at 20 years. You will pay the same or most likely less with a tax bomb and loan forgiveness.


Sent from my iPhone using SDN mobile[/QUOTE]

Recoup most of your money back = loss

Show me how you would end up paying less when you can't pay.


Sent from my iPhone using SDN mobile app

 

[mentos]

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.

Omg, don't even think about buying a house. Where the hell did you go to school to have a loan payment that high, USC? You already have a mortgage (your loans) and you want to double that? It's not 2006 anymore. This is what caused the recession back in 2008. What is your interest rate? I hope its below 3%...

You will be a slave to your mortgage and loans. What happens if you get a house then get laid off or your hours get cut? You know it's very likely in this job market. That's just asking for foreclosure and/or bankruptcy. Except student loans are exempt from bankruptcy, whoops!

I have 15k in loans left, i could pay it off in full if I wanted. My payment has been $500/mo at 3% for 5 years and I don't even feel comfortable getting a house before my loans are gone. Different strokes for different folks I guess.

 

[RealRX]

Well friends and coworkers have been telling me to buy a house for the tax benefits. Since I have nothing to claim, federal and state takes a huge chunk of my income. So that's the reason why I'm looking into buying a house is because of the tax benefits. I don't even know if I will stay in the area 10 years from now. So I don't see the reason for buying a house. I just want to pay off my student loans and maybe move to a nice luxury apartment in the meantime while I wait and see what the future holds. My family has been telling me that if I follow my plan then I will end up wasting a lot of money with no tax benefits. So now I'm in a dilemma: buy a house which is NOT what I want to do right now to make my family happy, or work to pay off student loans, move to a nicer area, and save up money. I want to go with the second choice but I have people to support, and they don't want to move to a nicer apartment because they think it's a waste of money. I don't know what to do...

It's quite frustrating. I just want to be content with my life, but by doing so I'm also being selfish and leaving my family out to dry.

 

[gwarm01]

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.

 

[cj98]

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?

 

[BMBiology]

Don't get too sad because I doubt a bank would lend you the money anyways.

You want to buy a house then you need to make some hard decisions now so stop thinking about renting a luxury apartment. How are you going to do that and save 20% down payment? Not going to happen.

Paying off your debt is not sexy. Contributing to your retirement is not sexy. You want tax deduction? You can put 18 k in your 401 k. You can put another 3 k in your HSA. How about 5.5 k in your ROTH IRA?

It is a sad day that a 6 figure earning pharmacist can't even afford to buy a house. That is the reality. You have to deal with it.


Sent from my iPhone using SDN mobile app

 

[BMBiology]

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?

Buying a house can be a very good decision if you do it right. No, you don't have to wait until your loan is $0. You can do both but you have to be realistic and buy within your means. The problem is too many people buy a house with too much emotions so they end up buying something more than they can afford and end up taking on more debt.

People don't want to hear they can't afford to buy a house. You went to school for 8 years, making 6 figures and you are renting?! Isn't that like throwing money away? Well, do you want to live your life paycheck to paycheck? Do you want to be a slave to your debt? It is your choice. Your life.


Sent from my iPhone using SDN mobile app

 

[ancienbon]

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.

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 cases

 

[pezdispenser]

But but but..what if price keeps on going up and he will be priced out once he has paid off his student loans?!


Sent from my iPhone using SDN mobile app

You could just wait until after the next 10-20 year bubble bursts, or move to a less expensive area.

 

[BMBiology]

You could just wait until after the next 10-20 year bubble bursts, or move to a less expensive area.

Or you can marry someone who makes a good living and doesn't have much debt. Problem solved.


Sent from my iPhone using SDN mobile app

 

[pezdispenser]

Make 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.

 

[ancienbon]

Make 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 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 200

 

[Dalteparin]

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.

I second all of this. Spouse and I lost more money than I care to contemplate when we sold our house; I don't want to say exactly how much but seriously, if I'd known how the sale would go I'd never have bought the damn thing.

So your family wants you to buy a house. Will they help pay the mortgage? Will they pay your taxes or HOA dues? Will they pay the roofer if your roof leaks, or help you replace the faucet when it breaks, 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.

 

[gwarm01]

.....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.

Hah, these are all things that I hate doing and have basically neglected since moving back to my house. My neighbors probably hate me, but it's too damn hot outside. Besides, I told my wife she can plant a flower garden but it's upkeep is her responsibility and I'm sticking to it.. so now it's dead and full of weeds.

I'm really a condo/townhouse kind of guy.

 

[Ackj]

Financially, mathematically, etc the loans are the best place for the money. But then again, that is being said by people who are taking vacations, buying cars, going out to dinners, etc. If the house is going to make you happy, save for that. Don't neglect your loans, don't live like a monk and obsess over the loans. Personally, I put about 1/3 of what I pay towards my loans in a savings account for a down payment, and my fiancee does the same.

 

[ldiot]

Paying off the loans will give you a lot more cash flow

 

[confettiflyer]

I bought a house, but everyone's situation is different.


Sent from my iPhone using SDN mobile app

 

[waiter]

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?

 

[ldiot]

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?

At the end of the day you still end up paying about the same amount (maybe even more) and get the pleasure of dealing with the loan for pretty much your entire career. It's just a drain on your cashflow... you could be 24 years into the repayment and have never touched the principle. What if the government decides to screw you over? Who knows where the USA will be in 25 years from now.

 

[BMBiology]

I bought a house, but everyone's situation is different.


Sent from my iPhone using SDN mobile app

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.


Sent from my iPhone using SDN mobile app

 

[gwarm01]

I worked with a pharmacist that was fast approaching 50 and still had tons of loans to pay off. She was a bit of late graduate with a ton of debt on a 30 year plan. I certainly didn't envy her and use that as motivation to stick to my 10 year plan on PSLF. If anything is forgiven, good, but if not it'll just be a few thousand extra on my part.

I also once briefly worked with someone who took out an ungodly amount of private loans to go to school in Boston. Poor person seemed so defeated by the weight of that debt.

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.

If I would have known I would be working for a non-profit I would have just taken out three times as much money and wasted it all on cars. Woooooooh!