Pharmacy Home Loans

[RX86]

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Has anyone started the home loan process with roughly 100k in student loans? It seems like a great time to buy in the next year to 3, but I worry as to whether I should pay my loans off first or get a home in the next 1-2 years in this market...

 

[Momus]

Only buy a house if it makes sense to do so...

If I were you, I'd pay that ~7% student loan first This is a negative bond of the rest of your life... This is practically a free lunch and there is no investment out there where you can get 7% return risk free.

If you are really set on buying, buy a house if the price to rent ratio less than 15 to make sure you are getting a good buy and do not sell for at least 5-10 years (6% realtor commission will eat away any gains).

I personally think house has made a short term bottom. I do NOT however believe this bottom is real because of the low interest rate. There will be a final bottom before a sustainable rise. Eventually, the real bottom will be made near the peak of a bond market interest rate.

 

[WVUPharm2007]

Historically, houses are right about at what they should be now if you are into drawing lines on graphs. Buy now versus buy later is a question of will the ridiculously low rates, upon rising in the future, be interest saving enough to offset any potential decreases in pricing with higher interest rates. The old $300k at 3.75% vs $250k at 5.5% question.

And with the fed set on not bumping rates until the economy is on track, which, upon happening, will also result in increased demand for housing, I think buying now isn't a terrible strategy. At worst it is a calculated risk. Interest rates are so low that when compared to historical inflation rates, it is almost free money.

Not to even mention the tax breaks and building of equity buying gives you.

 

[xtsukiyox]

Do you have 20% of the house cost saved up? Mortgage insurance is highway robbery, especially with the usual earning/saving power of an employed pharmacist.

 

[Its Z]

Certainly wouldn't wait 10 years until the loans are paid off before purchasing the house. But next 3 years will be a good time to buy. First time in 13 years we are renting...doesn't fill much different other than feeling like I need to own a house.

In my region homes are being gobbled up fast though the last phase of foreclosures will be released this and next year they say.

 

[spacecowgirl]

We bought a house with more than that in loans. It was an emotional decision, not a financial one.

 

[xiphoid2010]

Has anyone started the home loan process with roughly 100k in student loans? It seems like a great time to buy in the next year to 3, but I worry as to whether I should pay my loans off first or get a home in the next 1-2 years in this market...

My wife and I are planning on going house hunting soon, because the apartment is just getting too small with him crawling all over the place. With so many people leaving house ownership and renting, rent is going up while housing price is near bottom. Coupled with low interest rate, it's not a bad idea to buy a house now.

The main thing we discussed and finally agreed on is:
mortgage + property tax + maintenance cost - interest/property tax deduction vs. current annual rent payment should be roughly equal.

For example: if you are currently paying $12K a year in rent (1000/month) vs. buying a similar sized house at $200K.

Assumptions - 20% down, 3% property tax, 4.5% mortgage rate, 28% tax bracket, annual maintenance cost = 1% house value.

Annual cost of house: $9728 mortgage + $6000 property tax + $2000 maintenance - $3681 (28% of $7147 interest + $6000 tax) = $14,047 (~$1171/mo)

So $1000 rent vs $1171 house. Not a huge difference paper. Keep in mind of ~$220 a month increase in equity in the house, but likely to be off set by higher utility.

I recommend crushing the numbers before making any major financial decisions.

 

[Trakker]

I decided to wait until at least 2013 to buy a house. To me it only makes sense to buy if house prices start to increase again. If it continues to drop and if I sold it in 5 years then I would have to take a hit. In the meantime, the money that is supposed to go for a down payment is being invested and collecting interest.

 

[pezdispenser]

Annual cost of house: $9728 mortgage + $6000 property tax + $2000 maintenance - $3681 (28% of $7147 interest + $6000 tax) = $14,047 (~$1171/mo)

Be careful with the interest and property tax deduction. If you are currently using the $11,900 standard deduction, then you should calculate it incrementally, taking into account other deductions like state income tax, etc.

 

[Its Z]

No state income tax where he lives

 

[pezdispenser]

No state income tax where he lives

Oh I see. So he probably is using the standard deduction. This is what I meant. If you're renting and don't have many deductions, you use the standard deduction of $11,900. If you buy a house, you can itemize deductions:
$7,147 mortgage interest
$6,000 property tax
$1,500 state sales tax (insert your value here)
=====
$14,647 which is only $2,747 more in deductions than what you had before with the standard deduction At the 28% bracket, that's a reduction in tax of only $769.

 

[RX86]

So many options. We will be saving/paying down loans this next year and a half. The debate for us is whether to take the aggressive route on paying off loans (I.e. 3-4 years and done) with 7% return (and I don't quite trust PSLF, etc.) or pay graduated repayment terms (10 years) and save more towards a house and investments. I do believe the housing market won't bottom out for a few more years, the interest rates though, not sure about where they will go (perhaps even lower?).

I've noticed a lot of investors are buying up our foreclosed houses, wonder if this will continue when a whole bunch more trickle through the next few years, making it harder for us regular folks to compete (or might just stay away from foreclosed homes all together).

Thanks for all the advice. Nice to hear from other people in same career.

 

[xiphoid2010]

Oh I see. So he probably is using the standard deduction. This is what I meant. If you're renting and don't have many deductions, you use the standard deduction of $11,900. If you buy a house, you can itemize deductions:
$7,147 mortgage interest
$6,000 property tax
$1,500 state sales tax (insert your value here)
=====
$14,647 which is only $2,747 more in deductions than what you had before with the standard deduction At the 28% bracket, that's a reduction in tax of only $769.

Very Good point, I missed that one. 👍

But I also have to note one thing: itemized amount is not $0 even when people choose standard deduction. For example, it was $7K itemized vs $11.6K standard for us this year. So if you add the mortgage/property tax on top of the $7K and switch to itemized, it would result in ~$2800 reduction in tax vs. taking standard.

You are correct in point out that the mortgage/property tax benefit will be the biggest for people who are are near or already taking itemized.

 

[sfwusc]

Oh I see. So he probably is using the standard deduction. This is what I meant. If you're renting and don't have many deductions, you use the standard deduction of $11,900. If you buy a house, you can itemize deductions:
$7,147 mortgage interest
$6,000 property tax
$1,500 state sales tax (insert your value here)
=====
$14,647 which is only $2,747 more in deductions than what you had before with the standard deduction At the 28% bracket, that's a reduction in tax of only $769.

Being an accountant and pharmacy student....I am very impressed that you caught that. I have tried to explain that to so many future homeowners.