Student Loans v. Home Ownership?

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Lis
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Student Loans v. Home Ownership?

Postby Lis » Tue Oct 29, 2013 2:37 pm

Hi everyone, been following Get Rich Slowly for a few months now, but am only now joining the forums!

I have a question that I feel there's no necessarily right answer to, but I want to get opinions on what my next step should be.

I graduated college in 2012 and currently hold a good entry level job with room for growth. Like most recent grads, I have student loan debt, which is now about $16.5k. I'm currently renting in the same town my job is in, but rent is pretty high - $1,200 a month, and I'm getting a good deal. There are quite a few condos for sale in my area, where prices start at about $75k. Depending on the condo, mortgage payments + HOA fees would be just about equal to what I'm paying in rent.

Since I moved out, I've been putting every extra nickel and dime to my student loans, but even with that, Mint.com estimates that I'll make my last payment in November of 2016. I have an emergency fund that I'm comfortable with and I contribute to my 401k, but paying my student loans like that hasn't left much room for extra savings (I have started to put away 10% of my pay check, but that takes a while to add up).

I've been reading articles about first time home-buying, and I know you can get a mortgage for 3-5% down. My lease doesn't expire until June of next year, so my question, dear readers, is this: should I continue paying off my student loans with as much as I can, or should I switch to the minimum payments for the next year or so and save for a down payment and home ownership?

alohabear
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Re: Student Loans v. Home Ownership?

Postby alohabear » Tue Oct 29, 2013 2:43 pm

Hi and welcome! The answer to whether you should buy vs. rent depends in a large part on whether you want to remain mobile for your job or whether you intend to stay in the same area for a longer period of time. This is especially true if you don't plan to put the traditional 20% down, as you will have less equity in the house if you need or want to sell in a few years. Also, don't forget to calculate PMI into the costs of home ownership, along with maintenance, homeowners insurance, etc, when you do the cost comparison.

Jerry
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Re: Student Loans v. Home Ownership?

Postby Jerry » Tue Oct 29, 2013 11:23 pm

Well, I personally do not think that you should lower your payments toward the student loans. The sooner you pay off this debt, the better it will be for you. Apart from this, you should also note that as you pay off the student loan, you will be able to free up quite a lot of money. Moreover, your debt to income ratio will also improve. You may be able to qualify for a FHA loan to buy a condo with 3.5% - 5% down payment. If you are not planning to move out of the place, you can go for a FHA loan to buy the condo.
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Lis
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Re: Student Loans v. Home Ownership?

Postby Lis » Tue Nov 05, 2013 2:55 pm

Hey there, thanks for your opinions!

Unless there are some crazy, extenuating circumstances, I can't see leaving the surrounding area in the next few years (or ever, to be honest). I live a bit outside NYC, so I'll always have NYC, Stamford CT, Westchester, and Northern Jersey to look for jobs (if I ever lost mine or was looking for something better).

I just feel like I'm flushing money down the toilet by paying rent, especially when roughly the same amount of money could get me a condo... something I own. I guess I'm a bit fearful too, so far putting every extra dollar towards my student loans still has me finishing paying it off at the end of 2016. That's a long time from now, at least it seems like it.

Am I just getting to anxious for the future?

Argena
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Re: Student Loans v. Home Ownership?

Postby Argena » Wed Nov 06, 2013 5:40 am

Hi Lis,

I agree that you should keep up the good work by paying your student loans off first. Your time will come for home ownership. Good things come with patience. Once you have those loans paid off, all the income you receive after that can help you to create wealth.

Just hang in there, it's almost 2014 now.

jia103
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Re: Student Loans v. Home Ownership?

Postby jia103 » Thu Nov 28, 2013 11:18 pm

Let me quote something from Liz Pulliam Weston's Deal with Your Debt:

Imagine my surprise... the first time I heard a financial planner tell a client that debt wasn't necessarily bad....

The planner suggested our ... subject invest in her retirement plan rather than rushing to pay off her low-rate student debt. The idea that debt repayment needn't always be a top priority was news to me....


This is from Chapter 1 of her book that I've read a couple of times over the years. In this chapter, she described the difference between good debt and bad debt, and she explained how debt-free is the way to be eventually.

According to her, student loans fall into good debt; they're not toxic like credit card debt and payday loans.

I graduated in 2001 with a very low rate, and the loan amount was close to what you have. In fact, because of the rate, I would happily keep that loan for the rest of my life if I could since I'll probably never get a loan with a rate like that again.

I didn't like the idea of money going to rent either, and I wanted to build equity, so I bought a house right away. It's had a decent rate, and I only paid the mortage for a couple years before we moved out; now the tenants are essentially paying the mortage for me. Another two years and it'll be completely paid off!

Debt gave us an opportunity to seize an opportunity that might otherwise have passed us by.


You're right that there's no right answer. You're going to have to decide yourself which way to go depending on your situation, your budget, and your loan rates. If you can afford the long-term commitment, you might want to consider whether you want to take on some good debt.

Reading Weston's book was definitely eye-opening for me because I stopped worrying about all the "good" debt I had at the time. Instead of worrying about how large the mortgage loan was, I decided I'm happy with it because it's allowing me to get rich slowly. :wink:


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