Using up my savings for house/car???

[preludexl]

Okay, this might sound stupid but after reading a lot of old posts here I come upon the conclusion that it's better to buy a house than rent and that there is a lot of money, in terms of loans, that you can get as a student. I have roughly $20,000 saved up. I dont want to use it to pay for tution b/c it will barely make a dent in my eduaction overall. So why not enjoy being a student? Financial Aid wont know about your savings unless you report it, right? But I just rather spend it than report it in taxes anyway. I been wanting a Honda S2000 and can pay for it that way I suppose but I also want a house, and use it as a future investment. In Las Vegas, the housing market is exploding. Your equity in a house is more than your mortgage when all is said and done (probably double what your mortgage is in some areas). So my question is, should I just buy my dream car and get a house and not worry about financing school? Afterall, once you step into dental school, you are pretty much set for life. Or is there a way where I can stow that money away, but away from the hands of Loan Officers to be used as I choose fit through my 4 years?

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[NewNameForGoogleBot]

This should really be in the financial aid fourum . . . BUT,

You need to run the numbers if you want to buy a house. What would your rent be if you rent? What is your property tax rate? What is the appreciation you expect? What are closing costs, selling costs, loan origination costs? Utilities and house repairs can also stack up. I'm not saying it is a bad idea, you just need to really run the numbers. A good place to start is this fool.com calculator:

http://partners.financenter.com/motleyfool/calculate/us-eng/home10.fcs

Good luck!

 

[mpp]

Money in a house, car (provided it is not a collector car for investment), or a retirements savings account (401(k), Roth-IRA, 403(b), etc.) is not reported on the FAFSA and so you can put the money there without it affecting your EFC (the figure used to determine loan eiligibility).

 

[hotinwoof]

hey thanks mpp, I was afraid fafsa was going to rob me of all the ramen noodle eating savings. my beat up old honda has 175000 miles, i want to treat my self to something if i get in and start dental school next fall.

 

[DDSdude]

Personal opinion. Having a background in financial planning and the mortgage industry I would either buy a home (if you are single I would stay in an apartment) and drive your beat up car during school. You never know what the future holds and if there is an emergency or something comes up during dental school that is outside your loan budget you will need some kind of reserve. I would stash the money away in an investment that pays you either monthly or yearly and will not penalize you for withdrawing funds if needed. It is much easier to buy a car while you are in school if you need to than buy a new one now and have expenses on the car during school and end up taking the bus to school until you can save up enough loan money to fix it. Even new cars with warranties can have problems that are outside the bounds of the warranty.

Buying a home can be a wise investment. But I tell clients that your home is only an investment if someone else is making your payments. Liabilities eat you and assets feed you. I know it goes against what you have been taught, that a home is your greatest investment. If you are paying the mortgage it is your greatest liability.

During school you want to focus on receiving the best training and foundation possible to leave school confident in your ability to be a great practitioner and business owner (if you choose to own your own practice) and have the added stress of finances will take away from your focus on school and training.

You can use that money when you graduate to put down on a home, buy a car, float payroll if you begin a practice, etc. Also, when you graduate and want to buy a practice you will most likely need to finance it. By having a savings account balance, the financers of your loan will feel better about loaning you the money.

Just my two cents. The cheapest financial advice in town. It cost you nothing and me about 10 minutes of typing. Good luck.

 

[anamod]

house no doubt about it. From day one you own a house it increases in value, where as a car the second you drive it of the lot it loses value. I personally would put half of that money down on a house and buy a 10,000 used car. I have owned 2 homes and they have been great investments.

 

[swiminh2o]

Hard to decide what to do. I have a significant amount of savings and some property valued at about 55K. Not sure if I want to sell the land and use it to fund tuition or put it down on a house wherever I go to school. A house can be great but if resale isn't what you expect, it can bite you. Also, I am not sure if I will be given much as far as loans considering my savings account. They may not see me as being needy. However, like DDSdude mentioned I'd like to hold onto the savings for use in establishing my practice and/or financing my first home. Any ideas anyone?

 

[hotinwoof]

Originally posted by DDSdude
I would stash the money away in an investment that pays you either monthly or yearly and will not penalize you for withdrawing funds if needed.

What kind of investment does that? I lost over $20k in stocks the last 3 years already. Are you talking about mutual funds?

 

[mpp]

If the money is in any type of investment (savings account, bonds, securities, money market, mutual funds, etc.) that is not a tax deferred or tax sheltered retirement account must be reported on the FAFSA. Your financial aid may then be adjusted such that you will be expected to use that money for tuition and living expenses.

If you want to 'hide' the money, you have to buy something with it: a house, a car, fancy clothes, etc. However, using the money for tuition may be your true 'best' investment. There are few investments in which you pay in 25-30K per year for four years for a guaranteed return of 150k+ for the rest of your working life. Once you are working as a dentist, I'm sure you'll easily be able to acquire loans to help you with a practice. Or, within the first year or two of working, you could easily have the 55k back to you (with interest) if you live frugally enough.

Real estate might be a good investment, however, we may be at the top of a real estate bubble since interest rates appear to be on the rise again and it is likely that housing sales will begin to slow down.

You could also 'gift'' the money to someone you trust (a family member for example) such that they can invest it for you and it will not affect your FAFSA EFC. There are limits to gift giving that are not taxable events ($10,000 per year I think at the moment) so check with a tax advisor if you go this route.

 

[mpp]

Originally posted by hotinwoof
What kind of investment does that? I lost over $20k in stocks the last 3 years already. Are you talking about mutual funds?

Unfortunately, 3 years ago (beginning March 2000) was the one of the worst bear markets in history. If you are not up on the current year, then you have your money in the wrong place.

As far as what DDSdude is talking about in regards to investments that pay back yearly or monthly, these would typically be more conservative type investments. Certain bond mutual funds and certificates of deposit could do this or if you really want to waste your money you could buy an insurance annuity. The return may not be the greatest but it can be consistent with little to no risk for a loss of principal.

 

[ecdoesit]

I agree with the idea to buy a house or perhaps an apartment. For the house, if you are single, you might get into the trouble to rent some rooms to others. But, how do people generate the money for down payment?

For cars, I try to make certain the cities/universities that I applied have great transportation, so I wont need a car =) I think that saves a lot of money for gas and insurance.