With the cheap housing market (and the first time buyers credit offered by the government this year), I’d really like to buy a house before December of this year. I want to know whether that’s the smart thing to do, or if I should be putting my money elsewhere.
Expenses/Debt:
I have 3 different loans totaling about $30k as of today.
Interest on the loans are 5% ($2.5k), 6.8% ($11k), and 7.9% ($17k).
My monthly payment right now (for all three) is about $250.
I pay about $1200/mo for living expenses (I have a roommate, which helps).
I have no other debt.
Income/Savings:
My net monthly income is about $3400 (and it’s a secure job).
I have about $8000 in savings.
The only notable item I have worth anything is my car which I could probably get $7000 for in a pinch.
I also have an older family member who has $80k in savings that I can take, and use as another loan (and I’d give her a reasonable interest on it).
Now, I want to know which of these (maybe more than one) is smartest:
1) Buying a house before the end of this year
2) Buying a house some time in the near future (not this year)
3) Investing in stocks
4) Paying off more than my minimum monthly payment on my loans
Any help from knowledgeable people would be appreciated. Thanks.
The last time I checked, my FICO score was 750. And I’ve been good about paying bills on time, so it should be close to that now. One problem is that recently the only “CC” I’ve been using is a Paypal card which gives me 1% back on my purchases (but I don’t think they report anything to affect my FICO) — so I should probably get an AMEX.
Current rent: $1215
I can afford to make payments on a house without a roommate. My roommate, however, is willing to move into a house with me and pay me rent.
Also, I don’t spend frugally. I just haven’t been out of college too long. The $2200/month extra that I have is mostly being saved. The only “extras” that I have are once/week order food, $20/mo netflix, and I usually buy a board game every month for ~$20. I don’t spend on anything else.
I really wish I could move back in with my dad to save up money, but that’s just not something I can do (not due to a bad relationship, but due to personal choice).
Thanks for the advice so far.
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{ 3 comments… read them below or add one }
I would prob have a lot more questions. Such as your overall credit, credit score, true overall financial picture.
But in general…
I would:
1. Pay off the 30k in debt. Paying the minimum payment prob doesn’t even cover the monthly interest payments, and you’ll be in debt through death in most cases. Pay off the debt first. Pay off the higher interest debt first.
2. Don’t take out any more debt. Get rid of all but an AMEX card that you MUST pay at the end of the month, and maybe a gas card that has bonus discounts for gasoline.
3. Look at foreclosed, short sale homes. Remember in real estate it’s “location, location, location.” Get help from a veteran Realtor.
4. Talk to a CPA and or tax law CPA regarding your tax situation and about how best to receive that $80k. Is this is a forgivable loan, gift, estate tax gift, or straight loan where interest will be due and expected to be repaid. If it is the last part, then your house idea is prob not in the cards. Need to get this question hammered out specifically.
5. What is your current rent? Can you afford to make payments on a house WITHOUT a roommate?
If you don’t have a home, and have the means (help) to do so, and plan to live in it for 15-20+ years, I would be looking at that instead of buying stocks right now.
If you have free cash after mortgage and monthly expenses, start a ROTH IRA. Look at dollar cost averaging in the S&P 500 Index for the next 20-30 years.
Live conservatively. Watch your expenses. Print this post out and stick it in your bank deposit box and read it in 30 years, I’ll be there to collect my fees.
Good Luck!
http://www.realtor.com/
If you leave you student loans as they sit and pay the minimum payments you will be looking at 15 years if you are lucky- meaning that if you have a child the year you buy a house the child could be almost in college before you pay your loans off. As one commentator puts it – if you buy a house with student loans better plan on a extra bedroom for Sally Mae because she is going to living there for a very long time.
Some things concern me.
Never borrow from relatives – no matter how good a deal it seems if something goes wrong and it always seems to the hard feelings can last a lifetime, It is just not worth it.
You have too little savings to buy a home and not a good saving pattern. By your own admission you are blowing 2200 dollars a month. 3400 dollars net income and only 1200 dollars living expenses
If you used that 2200 dollars you could pay off those student loans in less than 18 months,
Stay where you can live cheap as long as possible
Pay off debt
Then save, savve save. .
You could realistically be debt free with 40+thousand saved in just 3 years.
I strongly suggest you do some research in the meantime and about the best resource out there is Dave Ramsey’s Total Money Makeover!
I’m not sure what your actual rent is now, but I’m assuming that much of that 1200 a month is your rent. I don’t know what housing costs are in your area, but you can probably find a house an get a mortgage with a monthly payment that is less than what you are paying in rent. Remember, you want a starter home, be satisfied with a smaller older house. In 5-10 years you will probably want to trade up to a nicer house and by that time, hopefully, that student lan will be whittled down.
I would emphasize a few things:
1. It’s fine to use part of that $8,000 for a down payment. Maybe half of that. But build up the $8,000 back as soon as possible. In this day NO job is secure and that’s a good safety net.
2. Once you get that $8000 savings back in place, dump as much as you can into those student loans.
3. If your job is as good as you say, try to put the maximum amount into your 401k. Most companies match what you put in your 401k by 50%. Remember, every doller you save for retirement now is worth 5 (or more) dollars saved for retirement in 20 years from now.