| Which Way to Go? Home or Debt? |
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Atalien
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| Which Way to Go? Home or Debt? |
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I am looking for some advice as to whether to buy a home or to wait and pay off debt.
For an overview of our situation:
Our gross income is about 94 (60k @ my job which is very stable. 34k at hers which is somewhat stable). We also have 3 months emergency funds saved.
Loans:
Car Loan 15k at 4.35%
School Loans 38k @6.5%
For retirement:
I am 23 and my wife is 26. I am contributing 6% of my salary to my 401k which is matched at a maximum of 3.5% of my salary. Also I add another $200 per month to my roth IRA which is invested in target funds with vanguard. My wife is contributing about 3% into her 401k.
Currently we are paying $1405 for a 2 bedroom apartment in the middle of Atlanta. We are flirting with the idea of buying a 2 bedroom condo here instead, since the housing market in ATL is pretty down. We are looking for a max 200k place, but would like to be around 150-175k.
The question is are we stable enough to make this move now? We are able to either pay down debt at a $1200 a month rate or save $1200 a month and pay minimums on the loans for a decent down payment at the leases end.
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Tue Jan 31, 2012 1:24 pm |
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littleroc02us
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That must be one heck of an apartment in Atlanta. I think your wasting a ton of money on rent. I live in the Twin Cities and our rents are higher. Before I bought our house I moved into an inexpensive apartment and paid off all of my debt. Why not rent an apartment for around $800 which puts an extra $600 to apply to debt and work out a budget. Your only 23, so combine the $1200 that use can put towards debt with the extra $600 ($1800) your total debt of 53k can be paid off in 2 years. So at age 25 I would then starting saving up a down payment, you should easily be able to come up with 40k when you have no debt. My advice would be to be patient.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Jan 31, 2012 2:28 pm |
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Atalien
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thanks for the response littleroc.
Yeah the apartment is a huge drain. The main gain from it is I walk to work and my wife works from home saving on gas, parking, and my sanity from sitting in traffic. Also it costs to live in the heart of Atlanta, especially in a nice area. I could live in College Park for 800 bucks, but there's no way in hell I would walk alone at 6am to ride the train to work. 
Honestly I was leaning towards waiting and paying off the debts before moving, but I wanted to get a few other viewpoints.
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Tue Jan 31, 2012 2:41 pm |
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littleroc02us
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quote:
Originally posted by Atalien
thanks for the response littleroc.
Yeah the apartment is a huge drain. The main gain from it is I walk to work and my wife works from home saving on gas, parking, and my sanity from sitting in traffic. Also it costs to live in the heart of Atlanta, especially in a nice area. I could live in College Park for 800 bucks, but there's no way in hell I would walk alone at 6am to ride the train to work.
Honestly I was leaning towards waiting and paying off the debts before moving, but I wanted to get a few other viewpoints.
That's all fine an dandy to save on gas, etc.., but that's a savings of $600 a month which is a savings per year of $7200. There is no magic pill here you need to live frugally for a while so that you can succeed in the long run. Like I said before your only 23, so pay that debt off, make some changes to your living expenses and you'll come out ahead...
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Jan 31, 2012 4:06 pm |
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Atalien
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I understand exactly what your saying. However, its not really saving $600 a month if I'm going to pay 200-300 to now drive/park my vehicle to work everyday.
So that $7200 in reality is now $3600 (savings none the less) and will cost me at least 1.5-2 hours a day for traveling to find a 2 bedroom apartment in ATL for $800. That $300 a month personally is not worth me now fearing a stroll around the neighborhood anything outside of daylight.
I forgot to mention that I am also finishing up my masters degree aside form working ft. So I kind of need the extra time. (The degree is on full scholarship, in fact all of the student debt was my wifes  )
One thing I could look into is a 1 bedroom apartment, that has ample room for my wife to have a work area.
Again thanks for the input
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Tue Jan 31, 2012 4:26 pm |
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johna
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I agree. You need to reduce your expenses. Go through your monthly bills and receipts. Can you stop going out to dinner or save money on groceries? How about that morning cup of coffee? Definitely pay off the debt before buying a home. You will get a better interest rate if you have a better credit score. You will get a better credit score by eliminating your debts.
For a free budget spreadsheet, great articles on saving money, earning money and investing for the future, visit http://www.livingonabeerbudget.com
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Tue Jan 31, 2012 4:28 pm |
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oldguy
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Ironic - you make $60K, she has the $38k student loan and makes only $34k ($16/hr) - is her job in the field as her degree? Or will she be finding a different job as the economy opens up in the future? What fields are you guys in? STEM - or other?
The two of you and your employer are investing about $9500/yr - if you invest in longterm 11%/yr products, that will be $2.1M when you are age 53, about $5M when you are age 63. So you are very much on track there - and the Target Fund is an excellent choice, IMO.
You could buy a $175k condo and stay within your $1405/m rent budget - ie, $900/m for the mortgage, $500/m for HOA, Prop Tax, Insurance, yada. So it could be a 'no-change' to your budget as long as you keep the same amenities - ie, walk to work, work from home. I would put as close to zero down as possible, retain the use of your own money for more productive things - such as keeping the $2M /$5M plans on track - no need to tie up capital in real estate equity, you get all of the condo appreciation whether you have an 80& loan or a 100% loan.
And since you both have no commute, why do you keep a late-model car? It depreciates at about $4000/yr while it's parked - why not have an affordable used car that you can pay cash for?
What are the length/terms of the SL's? Maybe you can consolodate? Or maybe there are some 3% 'keeper' and some 7%/8% loans that it would make sense to prepay?
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Tue Jan 31, 2012 5:25 pm |
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Atalien
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oldguy
Thanks for another point of view.
To answer some of your questions:
As for the school loans, they all are hovering in the same range. They are all between 5.5 and 6.8% currently and could potentially cap at 8.5%.We may look into consolidation, if we don't decide to pay them off early. Instead of working to pay tuition she worked to buy crap, but hey that's in the past and she is on track now.
She just recently moved with me after I got situated so that I could begin my career here. Her degree is in accounting and she is looking for more work, so hopefully she will be able to find something rather soon. For now she is working the same job she did back home, just at home rather than going in the office. I myself work as a programmer with a degree in computer science.
For the car, I agree it is a waste and we should think about getting rid of it. We sold hers when she moved here and kept mine. The only reserves about getting rid of it is not knowing where she is going to work in the future (may need to drive), and visiting family back home. I would really hate to sell it for 18k+- and then buy a used car for 10k that I absolutely hate driving when I do have to drive it (which I admit isnt all that often 2-3 hours a week). But that's just my immaturity speaking 
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Tue Jan 31, 2012 6:28 pm |
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littleroc02us
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quote:
Originally posted by Atalien
I understand exactly what your saying. However, its not really saving $600 a month if I'm going to pay 200-300 to now drive/park my vehicle to work everyday.
One thing I could look into is a 1 bedroom apartment, that has ample room for my wife to have a work area.
Again thanks for the input
Well, I guess you can continue in the path your going paying to much for an apartment, keeping your debt around and gaining absolutely no ground,, but IMO you have to make drastic changes to your lifestyle to get more financially sound. Also, I didn't get to where my wife and I are financially by doing the things your doing. I'm not trying to pick, but that's just my philosophy on finances. So to answer your question "are we stable enough to buy a home" in my opinion, no way! To risky!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Jan 31, 2012 8:06 pm |
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Atalien
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Wow littleroc your hardcore about paying down debt  . I didn't think $1200 extra a month to pay down debt or save for a home was considered down the wrong path.
Let me run something else by you then. If we sold our current vehicle (erasing that 15k loan) , and bought a condo with the school loan debt would you consider this a bad move? That would leave us with about the same payment for living expenses, and also cut about the same amount we may have saved from moving to a cheaper apartment as you suggested. After moving we would then focus on paying down the student debt with the additional 1200 + 400 freed up from the car loan.
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Tue Jan 31, 2012 8:30 pm |
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oldguy
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quote:
and then buy a used car for 10k that I absolutely hate driving
Hmm - my truck is 11 yrs old, I kinda enjoy driving it - 4WD, a deer bumper on the front, a good back-country rig. The car has 121,000 on it, we just drove it to Alaska and back, didn't hate any part of that drive, lol. And I doubt that either one is worth $10k - doesn't matter, keeping both of them for another decade or so.
Accounting degree, good. The skill based degrees - accounting, teaching, engineering, nursing -pay well and are easy to get good paying jobs. Way easier than the soft degrees. Same for your CS degree. Our youngest daughter has a BS Accountant, makes $87k - so, depending on your location, your wife can probably make some significant progress in pay.
As for the loans - I would accelerate the variable rate loans, they are a liability. But I would keep any <6% fixed rate loans for their full terms, that money can be put to better use. I don't prepay low-cost capital - in fact I put extra 5.5% loans on our houses and I invest that capital elsewhere.
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Tue Jan 31, 2012 10:22 pm |
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oldguy
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quote:
and then buy a used car for 10k that I absolutely hate driving
Hmm - my truck is 11 yrs old, I kinda enjoy driving it - 4WD, a deer bumper on the front, a good back-country rig. The car has 121,000 on it, we just drove it to Alaska and back, didn't hate any part of that drive, lol. And I doubt that either one is worth $10k - doesn't matter, keeping both of them for another decade or so.
Accounting degree, good. The skill based degrees - accounting, teaching, engineering, nursing -pay well and are easy to get good paying jobs. Way easier than the soft degrees. Same for your CS degree. Our youngest daughter has a BS Accountant, makes $87k - so, depending on your location, your wife can probably make some significant progress in pay.
As for the loans - I would accelerate the variable rate loans, they are a liability. But I would keep any <6% fixed rate loans for their full terms, that money can be put to better use. I don't prepay low-cost capital - in fact I put extra 5.5% loans on our houses and I invest that capital elsewhere.
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Tue Jan 31, 2012 11:39 pm |
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coaster
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quote:
Originally posted by littleroc02us
That must be one heck of an apartment in Atlanta.
Atlanta is very expensive. It's been a while, but I used to spend quite a bit of time there. The figure mentioned sounded believable to me.
~Tim~
Eye Candy : Why Whimsy
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Wed Feb 01, 2012 6:05 am |
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littleroc02us
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quote:
Originally posted by coaster
quote:
Originally posted by littleroc02us
That must be one heck of an apartment in Atlanta.
Atlanta is very expensive. It's been a while, but I used to spend quite a bit of time there. The figure mentioned sounded believable to me.
Wow, who would have though Atlanta would be that expensive, I rented a studio apartment before buying our house for $450 a month in a very expensive suburb of Long Lake. I didn't realize a studio would go for 3 times that amount in Atlanta. Minneapolis must be one of the cheapest major metropolitan in the US.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Wed Feb 01, 2012 2:38 pm |
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littleroc02us
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quote:
Originally posted by Atalien
Wow littleroc your hardcore about paying down debt . I didn't think $1200 extra a month to pay down debt or save for a home was considered down the wrong path.
Let me run something else by you then. If we sold our current vehicle (erasing that 15k loan) , and bought a condo with the school loan debt would you consider this a bad move? That would leave us with about the same payment for living expenses, and also cut about the same amount we may have saved from moving to a cheaper apartment as you suggested. After moving we would then focus on paying down the student debt with the additional 1200 + 400 freed up from the car loan.
There is a reason that I'm so against having debt, life experience. When I was in my late 20's I had an awesome job making a lot of money with a major tech company and like an idiot I went out an leased a Dodge Ram. When I got laid off after 911 and the tech bust, I had saved no money and had racked up credit card debt, along with putting my student loans on deferrment. I almost went bankrupt and vowed that I'd never do such stupid things again. So I busted my butt working 3 jobs and selling the truck and paying the difference. 4 years later I paid off all of the debt and was able to buy a house with my wife. Now I'm 41 and we buy cars with cash we save, we fully invest in roth IRA's for the past several years, we each contribute 6-9% of our income into 401k's with 6% matches from our employers and we have an emergency fund. What's great about not having debt is each month I have a ton of disposable cash left over that I can do anything with.
As for you question about selling the vehicle and buying a home with student loan debt, I do agree with getting rid of the car, but for me to tell you to pass debt to another debt just so you can get a home isn't something I would ever recommend. Again I stand by my recommendation of just lowering your life expenses so that you don't run into a risky situation. So, I'm always one that is going to take the less risky method, others take more chances than I but for me it's hard to argue with my success since changing my ways. Good luck!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Wed Feb 01, 2012 2:49 pm |
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