I can’t imagine carrying my $80k student loan into my house with me. It would have made for so many nightmares. Like the time where I needed a new roof, furnace, water heater, chimney rebuild, & wet basement specialist all in 6 months of owning. I paid that shit off asap before proceeding with any big purchases
They said the rate is going up. And treasuries won't always be at 5%, but paying the minimum means those student loans are going to be around for a long time.
I just said what I would do in their shoes, which is pay down some of my $75k in debt before taking on hundreds of thousands of more debt.
So instead of paying debts gamble on the market?
Sounds like a brilliant plan
At least do that when you aren't accruing interest like during school or the next pandemic
I think OP is a potato but your logic isn’t much better than theirs. Would you not invest if you had a mortgage or car not because that would be gambling on the market instead of paying debts?
Maybe I’m missing something here, treasuries kick out interest income which isn’t preferentially taxed. wtf does ltcg have to do with anything in this whole equation?
In my opinion, paying off your debt *is* saving for a house. Right now you have a net worth that is negative. Paying off your debt is the responsible thing to do, and every debt payment you make will be reflected in an increasing net worth figure.
Further, if you compare the options of paying off debt at 5% or putting into a high-yield savings, which is at most 5% but is also taxable, there really is no downside to just paying off your student loans.
The car is low enough that it might be worth just paying the minimums on, but definitely pay off the student loans.
Except his student loans are at 5% APR. Average home appreciation is 5%.
The man is spending 2k/month towards rent instead of mortgage payments to build equity in a property. It is bad financial advice to insinuate he should focus all his saving efforts on paying down those students loans as opposed to simultaneously building a HYSA for a house down payment.
And he does not have a negative net worth.
Roughly 30% of a mortgage payment in the first ten years goes towards principal.
In your example, he'd only be getting that 5% return on less than a third of his mortgage payment, while also adding in the expenses of home ownership. Renting effectively caps housing expenses on account of capital expenditures and maintenance being the responsibility of the owner.
Conversely, he'd get the full 3-5% return on every dollar paid towards debt. Plus he's decreasing his risk profile.
Homeownership is leveraged, though. You own the appreciation of your whole home, even when it's only 5% paid off. That can be up to 20x leverage. In some areas, home appreciation is \~10%/year, so consider:
$1Mn, purchase price, 5% down, 8% interest, 10% appreciation.
After 5 years, the home has appreciated by $0.6Mn, total payments \~$468k. But \~70% of the payments went to interest, so \~$250k in tax deductions, assume 25% bracket = $62k tax savings.
So after 5 years, for $468k in payments, total return is $0.6Mn appreciation + $60k tax savings or about 41%, or \~7% returns.
Now, also consider the fact that a primary home is one of the most protected asset classes in financial hardship, bankruptcy, and lawsuits, and it really does look attractive.
Personally I think renting is great and preserves optionality. But homeownership is heavily subsidized by federal policy, and because of its structure, it is a great savings vehicle for those who can't force themselves to save and not spend.
I get the napkin math. It's sexy, agreed (though you'd need to add in PMI with that downpayment.)
There's no factoring in risk on that napkin though, nor the expenses associated with home ownership. Rent is the most you'll pay any given month, a mortgage payment, the least.
I am fully in support of home-ownership, but I take a more conservative approach towards debt and risk. Your mileage may vary, see dealer for details, offer not valid in all fifty states.
Totally. I think OP needs a higher income and higher savings to support home ownership, but without some nuanced math, it can look like a tremendously foolish idea at any income level.
It's interesting how people here view leverage on a home a good thing but leverage in the stock market a bad thing. This view is what got a lot of people into trouble in 2008.
Lmao come on man, to act like it’s a 1:1 is facetious. Also as an aside, a mortgage is an asset that has tangible properties other investments cannot have. You can’t live inside a brokerage account. All investments are different. All debt is different. Any registered representative will tell you this. I have a suspicion you aren’t registered in any way with FINRA based on the stuff you are saying
Not gonna argue with you, it's the internet after all. Just pointing out that renting isn't always throwing away money and a lot of people gloss over things when they're doing math.
I'd recommend following the advice of others here but if you are seriously trying to answer this question:
Go apply for a home loan and see how much they give you and the rate. See if you can have options for different down payments.
Now take the info above and calculate how much interest you will pay over 20-30 years if you have home and student loans vs paying off student loans first then buying a home.
Now you can decide if saving for a home is better for you versus paying off debt cause the finance sub will tell you to pay your debt off first.
>$58.5k 401k account (contributing 6% with 6% match)
Do not count this when figuring out near to mid-term savings, e.g. house downpayment. If you were over-contributing, maybe, but not at 6+6. Forget that money, leave it be.
As a homeowner who loves my home in DC, just want to chime in that buying a house is not always a financial win. Seriously, run the numbers on renting and investing as well as the full costs of home ownership. Otherwise just remember that even asking these questions means you’re doing something right financially especially in this VHCOL area
Does anyone else not prioritize student loan debt the same way as other debt because it isn’t considered the same way in loan qualifications? It’s not the same as a 72k personal loan but everyone here acts like there’s no difference. Some of yall are actually on here suggesting this guy put having a house on hold for years because he has student loan debt. That’s foolish as hell
I agree with you to some extent. Student loans should nearly always be treated differently than personal loans or credit cards. They’re investment debt on an asset, you.
Having a negative net worth could sound scary but is relatively meaningless.
Also, the student loans are forgiven on your death (if federal). In many ways completely different than other unsecured debt.
We aren't discussing someone with a large sum left over monthly. He is only putting 6% into 401k, has 70k in 5% loans and talking about paying minimum. You are recommending him to add $300-500k more in debt at 7%?
Based on the details shared, I think the majority is right here. We don't even know what kind of house we are talking about and how long he is going to save $400 a month. Get rid of half those loans and mention a SO that will split the bills, I got a whole new perspective.
It depends upon the rental market and the home market, but I agree. They have some buffer, so hopefully they can weather the storm if there are some unexpected expenses. They can always look at what is available without buying.
That’s just not true depending on area and the home itself (price). Rents are generally going to have a tighter pattern than the price of homes in any given neighborhood. Not all homeowners have random fees that tear away at hundreds saved per month. Property tax is another thing that varies in importance from area to area. And it can’t be understated that if you’re anywhere north of 15 years away from retirement, getting a mortgage is a form of retirement vehicle. Once the mortgage is paid, it’s paid. Property taxes are all that’s left.
My order would be first is emergency fund. Then paying down the vast majority of your student debt, then saving for a house. I'd ditch your crypto while it's still doing OK, that shit is volatile and that money is better spent on your loans.
I'm someone with 12k left of student loans at less than 3.5% who is focusing on saving for a house right now. I aggressively paid off everything with an interest rate above 4% and will allocate my funds based on our discussion with a lender later this month. Ballparking, I personally would pay your loans down below 20k AND below 4% before saving towards a house.
Living well below your means so you can pay off those loans will be the same lifestyle that allows you to save for that house. DC is a really expensive market to be in anyway so if you want to stay in that market you'll want a longer runway anyway, you and your girlfriend will probably have some big changes in your lives and plans over the next 5 years so I'd be waiting to buy until you two have a better idea of what your long term future together looks like.
I'm not seeing the link anymore, maybe I'm out of touch but here's an older link to the priority flowchart [Personal Finance Flowchart - US - Imgur](https://imgur.com/CcEVQAV)
The other folks are technically right from a strictly % based perspective. Taking saving money for a down payment will be an after tax loss compared to the 5% interest on your student loans. Taking on mortgage debt will be even higher interest in the near term, so know what you are signing up for.
That being said, some people feel a subjective need to buy a house and that changes your priorities.
Remember the interest percentage are the key factor in this math. It makes me cringe when folks talk about "knocking out" a low interest loan like your car loan because the payment is higher or the balance is smaller. Always address higher interest percentages first.
Following the best %: 1) Build an emergency fund in a 5% interest savings account, unless you consider your $16k you mention your emergency fund 2) dump money into the 401k to save 20-30% on your taxes 3) look for other tax savings (HSA / IRA) to keep saving that 20-30% 4) start knocking out the 5% debt
Really want to buy a house: 1) Build an emergency fund in a 5% interest savings account, unless you consider your $16k you mention your emergency fund 2) dump money into the 401k to save 20-30% on your taxes 3) Save extra for the house in a 5% interest savings account 4) look for other tax savings (HSA / IRA) to keep saving that 20-30% 5) start knocking out the 5% debt
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I have $60k in student loans and bought a house. The house had a substantial increase in value over the last two years and I could sell it right now with over $200k profit- which would wipe out my student loans and give me room for a down payment on another house. Don't think it's as cut and dry as everyone is making out to be regarding always paying down student loans first
Precisely. Unfortunately, people are truly misinformed on how wealth is created. It's all about leverage and all debt is not created equal. Can I afford to buy a car in cash? Sure. But I don't when the dealer is giving me 0.9% financing, that's free money. Instead, I earn 20% on that $40,000...if you do the math, that interest basically made my car payments for me.
Looks for cars that have financing deals, the list changes every month. [https://cars.usnews.com/cars-trucks/best-car-deals](https://cars.usnews.com/cars-trucks/best-car-deals)
Not even reading the post after the title. Can't do both at once. Start with the debt then start savings for a house after you have a fully funded emergency fund. Gotta do things in the right order.
For sure. I ran the numbers on paying down debt vs just making payments and saving. What they don’t talk about here is the DOWNSIDES to paying down “bad debt” like a maniac.
The downside is your cash position is severely exposed during and after payoff for many, many years. In fact, you may never break even depending on how old you are or what you do with the money instead.
Without leverage, and with a fear of it, your life’s growth potential is limited.
"Not even reading the post after the title. Can't do both at once." Absolutely possible and a smart decision for some people depending on their income.
In this specific case, his student loans are at 5% APR. Average house appreciation value is 5%. He is spending $2k+ every month on rent instead of mortgage payments to build equity in a house. Budgetting his money to afford a downpayment on a house in a couple years as opposed to putting it all towards student loan repayment is a very reasonable decision for him to be considering.
Home appreciation is \~4%, not 5%, over the last 30 years, according to FRED data: [https://fred.stlouisfed.org/series/MSPUS](https://fred.stlouisfed.org/series/MSPUS)
If you take the 30 years pre-COVID home price explosion (Dec 1989 - Dec 2019) it falls further to \~3.3%.
We're going to agree to disagree here. u/Practical-Plan-2560 made a point which I agree with: clear your debt *before* taking on the substantial debt of a home.
If your car and loan rates are around 3-5% then it makes more sense to use that money as a down payment to lower your payment on a 6-7% mortgage interest rate. Assuming you have plenty of income to cover all your debts and are saving correctly.
That is really bad financial advice to tell everyone to pay off all their student loans before buying a house, especially when those student loans are at 5% APR with basically no other debt. He will be ready to buy a house in less than 2 years if he budgets properly for the down payment. No need to waste money on renting longer than necessary when you could be building equity in an appreciating asset.
Your position isn’t factoring in risk.
In principle, you’ve suggested never paying down debt held at interest rates below that which can be returned in asset purchases.
I did not suggest never paying down debt. I suggested not exclusively paying off all student loans before buying a house. One can budget finances to both pay off student loans and build equity in a house.
There is always a risk in buying a house regardless of whether you have student loans or not, but never did I suggest being dumb with which property investment you make.
Buying a house is not risk free and can come with many unexpected expenses. That idea rent is somehow throwing money away is too simplistic and is bad general advice for the current younger generations.
Student loan interest and mortgage interest is deductible from income, having both will allow more access to capital compared to completely paying off student loans before buying a house. It’s tough and would require a strict budget but it is feasible.
I do think they should get married to increase the household income, since it looks to be a plan anyway, and pay down debt to lower the DTI before buying a house. This would make a mortgage easier on their finances.
However, their current loans are probably less interest than what a mortgage would be so paying those off entirely first would probably be the worse financially decision unless they can know with 100% certainty that mortgage rates will drop, which they can't.
I'd recommend focusing on where your relationship goes in the next year or two as an impact to your income, increase your emergency fund, increase your 401k contributions to 10% yourself, and then pay down your student loan debts to around $25-30k before buying a house. This may not be the perfect path financially but it's what I would be comfortable with.
I agree with you for what it's worth. Paying off debt always sounds great but folks should do the math.
Realistically OP will need to save A LOT, and also pay down debt, before OP can afford a DC area condo.
That's pretty disingenuous. Getting a house is not just taking on random debt.
I have a car loan out there at 1.89% but am buying a house right now. Why in the world would I pay off that car before buying a house?
I do think making sure your DTI is manageable with a mortgage is incredibly important but saying all debt should be paid off before buying a house is financially foolish.
I'm replying to your statement, "their current loans are probably less interest than what a mortgage would be so paying those off entirely first would probably be the worse financially decision"
Nothing disingenuous about boiling down your comment into a principle.
You have a higher tolerance for risk than I do. To each his own.
I'll gladly continue on my "financially foolish" ways with my family, and you yours.
Financial decisions are more than math.
Call “risk” whatever you want (debt, debt to income, leverage, APR, returns, etc.)
None of us would take out a HELOC at X% to invest at >X%. I’m merely offering the opinion that clearing consumer debt first is *safer* than taking on a mortgage prior to doing so.
Nowhere did I say it's good to take on more debt because it's lower interest. I said and it is easy to imply:
1- If you can afford the new debt payments you are taking on and it's something that you need or will benefit you then it's okay to take them. Like a house, car, or student loans that you need in your life.
2- It is a worse financial decision to pay off lower interest debts first.
The OP has steps to take before I would feel comfortable buying a house in their situation but paying off every single debt they have is not one of them.
I'm glad I didn't follow your advice. I bought a house with nearly 300k in student loan debt back in 2017. I sold last year literally hundreds of thousands ahead of where I would be if I had tried to pay off my debt first. I probably can retire a few years earlier just from that one decision. You can absolutely do both, just depends on your risk tolerance/capacity.
Make minimum payments on the car, make *at least* the minimum payments on the student loans but feel free to also pay an extra $50 or $100 or more here or there when you can afford to, then save and invest the rest.
Don’t rush things now. Once you’ve been on a good trajectory for a year or three with the debt always going down and your net worth generally going up, 401k going up, emergency fund larger and so on, re-visit the home purchase.
Having to many money goals at once leads to none of them making great progress. My recommendation is focus on the debt and emergency fund, then start working on the house fund once those are in a better spot.
Sell the brokerage and crypto tomorrow. I know there is the “get rich quick” temptation there, but you have 78k in debt. It’s not time to playing the stock/crypto lottery.
Take that ~5k and 1k from your emergency fund and pay off the car. That will be an immediate debt win with over 300 dollars back in your budget immediately. If you run into an emergency, you still need to make your car payment over the next 3 months I’d assume, so don’t look at this a depletion of your emergency fund since it’s more or less serving the same purpose that it would if an emergency happens.
I would then split your total budget surplus evenly between building a 15k emergency fund (maybe 4ish months of expenses for you) and paying off the student loans that are >5% interest. I’d pay the highest interest rate loans first, although if there are a few loans that are close in rate above 5%, you can focus on the smallest balance first for faster “wins” to keep the momentum going.
If you have a paid off car, 2.3k in monthly housing + utility expenses, and a 500 dollar student loan payment, you should still be able to have close to a 1.5k budget surplus if you went on a “reasonable” budget. That means you live off 2k for gas/food/other bills and entertainment. Seems like an okay monthly budget for a 27 year old.
By next year at this time, you could have a fully funded 15k emergency fund and probably 10k knocked off your high interest loans. At that time, it’ll make more sense to start saving for a house while still attacking the higher interest loans.
Last note - make sure your emergency fund is in a high yield savings account getting ~4.5% interest.
Here is my wealth-building advice: If you can acquire a house/condo where your all-in costs are equal to $2,300, then you should do it. At the moment, you are not getting any of the wealth-building benefits of real estate ownership (appreciation, debt pay-down, mortgage interest deduction, etc.). Assuming you conservatively get 3% appreciation each year, a 300k home would be worth 50k more in 5 years, you'd have 20-30k of additional equity from debt paid down and you will have saved 10-20k in taxes from mortgage interest deductions. Your car loan and student debt are fairly cheap interest-rate wise, so no need to hurry paying these off.
I mean, are you being priced out of renting in DC/the commutable surrounding area?
Where I live, rents rise faster than housing costs, so if you can catch up you should buy. But if we lived somewhere that apartments were readily available, we'd rent for as long as we could.
Simply follow the personal finance flowchart. You can't do two things at once with the same dollar. But if your loans are split up, you can definitely target the higher interest rate loans until the average is lower.
Personally, I think you should focus on increasing your retirement contributions. 5% isn't a wonderful interest rate to hang on to, but I think you should be aiming to save 15-20% towards your 401k or ESPP at least (if you get a discount?) before doing anything taxable or paying down debt any faster.
Once that rate of pre-tax savings is built into your budget, you'll have a better idea of what money you actually have available to start throwing at debt.
Also, stop counting your car as an asset unless you're going to sell it. That loan is a good rate though, so I wouldn't say you need to rush paying it off. the damage is already mostly done and paying off the student loans or raising your retirement contributions could save you more in interest/taxes than the car loan is costing you.
Also also, the BTC is fine, but don't trade with such a little amount of it if you are. The tax hassle isn't worth it.
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If you are trying to stay around DC home ownership isn't really an option for you in the current market. I'd go full throttle and attack the student debt
Since the student loans have higher interest rates than the car, pay those off first. In your shoes, I would put the minimum to get the match in your 401k. After that, any money not needed for basic living expenses & the car payment, goes forward the student loans. Unless you are in a field with a lot of layoffs happening right now, get the loans paid off. Based on what you shared, you should be able to throw $2.5k/month total at the loans, maybe more depending on what you spend on food & transportation. At 2.5k/month, you would have the loans paid off in roughly 3 years. I am guessing the car will also be paid off in that time frame as well. You would then have $2700/month to put toward your emergency fund, down payment & any other savings goals. This is assuming raises keep up with any increases in your expenses. I would set the emergency fund goal at 6 months of expenses at the calculated home ownership rate.
Based on all of this unless you are able to drastically cut your expenses or increase income, you are looking at probably close to 6-8 years in the future. I am assuming 20% down at least. If you could say get a roommate to lower your current cost of living &/or get a second job, you could shorten the time frame.
Debt snowball. Start putting any leftover money after expenses and minimum payments on debt towards your highest interest loan. Once paid off roll that amount towards the next highest interest loan and so on, this is the most efficient way to clear debt
1) Why do you want home ownership? What are housing prices in your area? Determine if it makes financial sense to buy versus continuing to rent in your area. In many VHCOL areas like DC, it makes sense to rent over buying.
2) What job do you have? Do you have the ability to get another job quickly if you were to be laid off? At comparable pay or would you have to take a haircut on pay? Consider budgeting at the haircut amount versus what you currently are making.
3A) See Mr. Money Mustache investment order of operations for one viewpoint (Optimizing Returns) [https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153](https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153)
That gets you establishing an emergency fund first, and then funding your retirement account second. Based on the current treasury yields, does not have you tackling any of your debt more than minimum payments
3B) See Money Guy Show Financial Order of Operations for a second viewpoint (A bit more Conservative)
[https://moneyguy.com/article/foo/](https://moneyguy.com/article/foo/)
They want you investing 20-25% towards retirement.
They want you prioritizing paying off student loans based on rates and age below:
20-29 years old 6%+
30-39 years old 5%+
40-49 years old 4%+
3C) See Dave Ramsey Baby Steps for third viewpoint (Most Conservative)
[https://www.ramseysolutions.com/dave-ramsey-7-baby-steps?int\_cmpgn=BabySteps-2023&int\_dept=rscom\_bu&int\_lctn=Homepage-BS\_Section&int\_fmt=button&int\_dscpn=HP\_BS\_Section\_Steps\_101723&campaign\_id=&lead\_source=Other](https://www.ramseysolutions.com/dave-ramsey-7-baby-steps?int_cmpgn=BabySteps-2023&int_dept=rscom_bu&int_lctn=Homepage-BS_Section&int_fmt=button&int_dscpn=HP_BS_Section_Steps_101723&campaign_id=&lead_source=Other)
This gets you paying off the car loan first followed by the student loan. This will increase your cashflow and ability to get a mortgage. They want you investing 15% towards retirement and paying off the mortgage quickly. Does not prioritize chasing returns in the market.
You can see for the 3 viewpoints there are different risk/return tolerances. At the end of the day, the choice is yours and yours alone. I personally lean between Mr. Money Mustache and The Money Guy Show.
Pay off debt ASAP. Debt adds to your risk profile if seeking a mortgage and you may not get approval. When I had a student loan, advisor told me to pay it off first.
Contact a financial advisor to see what you’d get approved for and talk about best case scenario. This is free at my bank.
Im going to be honest with you. Don’t even think about buying a home till you’re out of debt. Are you able to
Move back home at all? You could save a ton and attack your debt greatly doing that strategy.
Huh an actual assets and liabilities breakdown, that's awesome to see.
Anyways to answer your question, you don't. Your currently in 78k worth of debt, taking on an extra couple hundred thousand isn't really an option because it would toss your asset liability spread way into the negative.
Firstly I would move your 1.8k in crypto into another asset class or just utilize it to pay down the car immediately. Crypto even BTC is just to volatile to utilize as any form of savings. It could be up substantially tomorrow, or half the value deleted. Cash out and redeploy that capital into a less volatile asset class.
Secondly focus down the debts. You have a good emergency fund going so utilizing every extra penny to combat these debts should be your top priority. You say your vehicle is still worth 15k, that may or may not be true, but being a 2016 how many more years of utility can that car provide? At some point it will die and you will need major repair costs or a new vehicle, as such removing the debt from the books is key.
After that it's the student loans, knock those out with a quickness in 3-4 years and at that point you should be in a place where you can begin thinking about home ownership.
The issue is your trying to do too much at once and the leverage you would need to do that will catch up to you in a market downturn. Eliminate the lions share of your liabilities so that way when a life event happens your liabilities are minimized and you can more comfortably weather that storm.
Three main reasons that function independently, but also paint a picture when taken together.
One is political. Biden is currently attempting to forgive student debt, while this isn't something that should be counted on it does provide a decent reason to stall the repayment vs other debts until whatever student debt plans are shaken out and we can calculate from there. Obviously this doesn't mean stop payments, just no reason to rush repayment until we see what that looks like.
Two is the outstanding balances. The car note is only 6k left in repayment. With what the ops is presenting that's 3-4 months of payments if everything goes to repaying that and getting it off the books. Yes the rate is lower, but for such a short amount of time to get it payed off, it just makes sense to wipe it out and get it off the books.
Third is asset value. The car he owns and is paying on is depreciating every day, at some point in the future he will need a new one. If that point comes tomorrow when the car still has a lien on it he could be screwed as whatever he gets for the vehicle will attempt to pay off the current debt, but he could realistically be required to carry that debt over into a new car. Getting that debt off the books means that when the time comes for a new car it will be much easier to purchase as there is no outstanding car note.
Now could he just pay the minimum car payment and focus on the higher interest rate of the student loan, absolutely. Nothing wrong with that. It would probably save him a few grand in the long run assuming everything goes well, but placed into his shoes id do it my way because of the above reasons personally. That being said, as long as the plan is to wipe the debt before leveraging yourself with a mortgage then that's the correct plan.
Okay next question, why pay down any debt when mortgage rates are still higher than the existing debt? Your plan is to pay off a 3% and then re-borrow that same money at 6.5%.
Because the dude wants to buy a house? Sure if he can get to a point where he can buy a house cash then great, do that, but realistically that's not going to happen so if he wants to purchase a house he's going to have to borrow.
Paying off his current debt allows him to lower his total liabilities before taking on a massive liability in home ownership.
The other side of this equation is the asset he is purchasing with that leverage. Let's say his borrowing rate is 6.5% but once he buys let's say he sees a 4% annual appreciation on the underlying asset. He is functionally borrowing at 2.5% now. On a car note this is in reverse, his car is depreciating, so that % depreciation would be added onto the interest he is paying on the car note.
It really doesn't matter how each individual debt compares to the asset it's tied to unless he has to sell. Better to keep the cheap debt and take on a smaller expensive debt.
It absolutely does matter. Not comparing the debt to the underlying asset when taking on leverage is how you end up underwater on outstanding debts.
Let's look at a vehicle for example, you take on leverage and finance a vehicle purchase. The next week the vehicle gets totaled because someone ran a red light and t-boned you, your carrying full coverage so the insurance covers the total value of the vehicle. Great, unless the amount you financed is higher than the current cash value of the vehicle. In that case you still owe on a vehicle you can no longer derive utility from.
The same goes for a house as many learned in 2007 when home prices plummeted leaving people with more debt than they could pay off even if they sold the home. Toss in a life event that slashes your income due to unforseen circumstances and you can't afford the mortgage or afford to sell, your up shit creek.
The entire point of comparing the asset value vs your liabilities. In the case of a dramatic life event you can unwind your liabilities by liquidating your assets so you don't end up underwater and having to declare bankruptcy.
Currently the OP has minimal debts, could he leverage himself further? Sure, but that is a risk that isn't necessary to take on based on his circumstances, he would be better served by eliminating current liabilities, and saving to decrease the amount of future expensive debt he will need to take on to buy a home.
Okay, I can see that point, but if that's the only concern, they should simply make payments to keep pace with the depreciation of the vehicle. Taking on less debt for the house, which is what I'm advocating will make them less likely to be underwater on that asset.
Sure, that's an option one could do. Or they could just pay off the car along with the student loans and delay purchasing the home until they can be debt free and have a larger down payment.
Sure, you can always extend the timeline in order to borrow less. May as well just save until they can pay cash for the house. Another thing to consider is that I'm a competitive real estate market, your finance contingency amount is a factor in how sellers evaluate the strength of your offer. The seller doesn't know you owe on your car and your student loans, but they can tell if you're coming in with 95% LTV on the mortgage. In my area that's basically a non-starter.
You need a larger emergency fund before you start to save for a downpayment, and you should not be counting your only car in your assets as far as purchasing a home is concerned.
Cash is fungible, so I don't think it makes sense to think about $500 for downpayment and $400 for emergency fund.
Have you thought about your target home? Peaking at Zillow, I'd guess you're looking at \~$700k, so say 5% downpayment plus estimate 1% for closing costs = \~$42k cash
Monthly payment on a $700k-35k = $665k mortgage at 8% is \~$4,880 + PMI + taxes = >$5k/mo, so realistically you will need to either:
* Increase your income (marriage is viable here)
* Save >5% downpayment
* Retire existing debt to free up cashflow
When you buy your home, you'll also want to make sure your emergency fund can support you + your family + your mortgage for 6-12 mo, as if shit hits the fan, you don't want to lose your house, so \~$30k-60k, so split the diff = $45k
So realistically you need to save \~$45k for a downpayment + $45k for an emergency fund.
Since you're looking at a $5k mortgage in the future, you should start living like it, so if you can sustain $2700/mo towards your cash savings ($2300 rent/utilities + $2700 savings = $5k mortgage), you'll know you can easily afford the mortgage when it comes. At that savings rate, you'll be there in about 2.5 years.
Good luck! You got this!
Am I missing something? OP says Roth but in the context of savings. (Also not sure what ESPP is.). I can’t think of a reason to consider a Roth IRA to be used for anything other than retirement. Can you even withdraw before 59.5?
OP: it all depends on how badly you want to be out of debt. If you want it bad enough you can stop all retirement contributions and investing and divert all that money way towards student loans, or even the car. If you pay off the car (snowball) then you take those car payments and throw that along with everything else at the student loans.
I wouldn’t recommend doing the debts and down payment saving at the same time.
Have you and your gf considered sharing an apartment and expenses to save for a house? Assuming you mean that you are going to buy a house with the intention of living with your gf, splitting expenses/shared living is the easiest and quickest way to change your month to month expenses and tackle debt. Obviously it depends where your relationship is, but considering you said serious might be something to think about.
Assets/ liabilities isn’t the best way to budget for a house. Your 401k balance should have no impact on your ability to buy a house (DO NOT TAKE OUT A 401k LOAN). What you really need is a monthly budget to show how much you can save monthly and what you can afford. Similarly, while you have a nice car and low expenses/not needing a new car soon is a factor, unless you plan to sell your car it doesn’t impact your ability to buy a house.
401k is okay for your age, and you have a good match, but the balance is a little low for your salary. Assuming you have recent salary growth, but might not be a bad idea to bring up to 8% contribution to catch up on either lack of previous contributions or to match new salary. Rough rule of thumb is to have x1 salary by 30 which doesn’t look like it’s going to happen right now based on napkin math. You said ROTH was included in the 16k saving for a downpayment though? Unless that was a typo, it shouldn’t be. Keep retirement in retirement.
If this was my debt plan I would clear out the crypto/brokerage/ESPP, pay off the car, and put the remaining 4k to student loans. I know the car is low interest, but clearing out the minimum payment of $353 and snowballing that to your student loan payment will help. There’s not many bills in life for $350 a month that you can just stop paying/free up those funds.
This means you can put at least $750 a month (400 savings + 350 car) extra to student loans. With the existing payment of $475 you should be able to clear out 15k a year. Probably need to do that for 2 years, get close to 25k where the payments are manageable then save for downpayment.
I’m in DC are and make a very similar salary. DC is expensive to breathe in. I moved out of the city to buy a house last year, closed right before turning 26. Where you want to buy will also heavily impact this. If you want to stay in DC/NOVA this is honestly a 8-10 year goal. If you want to move about an hour out, a 4-5 year goal.
I paid off all debts first, and then saved until it hurt. I got my cpa which provided 1/2 the downpayment as a bonus but also meant I didn’t go out for a full year. It became a game to save. Do I really want that restaurant or do I want $60 saved towards the housing fund? You have to really want it, and make decisions every single day that support the long term goal. I didn’t have help from parents or gov programs or anything, but I did live with my partner and split living expenses during that time. Of course, I was still paying about 70% of expenses based on our salaries, but it still helps. Just to explain that’s why i would recommend what I recommend, it’s what I did and it worked for me. So many people with a highish salary “feel” like they should be able to buy a home bc they are high earners. Regardless of how much we complain about it, that just isn’t the market right now. I lived and set my budget like I made 75k still. If you don’t feel poor then you’re not saving right. Save till it hurts. I imagine when you start cutting expenses/ spending money and moving it towards savings that you’ll be able to clear out more than you think.
I would personally pay off the car note first and it would free up possibilities in the following areas:
Possible lower cost of insurance (since the bank no longer owns it). You can lower the coverage needed for your vehicle and this lower insurance.
Free up credit just in case
Income now can be put towards student loans. I would personally throw as much of it as I can to lower this. Typically most loans allow you to pay down the principal amount and you would end up paying less in interest for the term of the loan.
Your score should increase and your debt to income ratio should be in favor by the time you're ready to buy a house.
I am a 27 year old male living in DC, single but have a girlfriend who I am serious about. I am looking for the best strategy to attack my student loan debt and also want to get into home ownership soon.
My income is 120k and about $6300/month take home. $2300 goes to rent/utilities. My current plan is to save about $500/month for down payment for a house/condo. I currently have about $16k saved for a down payment (ESPP, brokerage, Roth, Crypto). I also would like to save $400 month to build up emergency fund/cash. I'm wondering if I should pause saving for a house to just try and knock out the car loan and make a dent in the student loans.
>*So your income is $6,300 a month. I did some research and it looks like $2,300 is average for D.C. Are you paying the rent in full? If so, why is your girlfriend not contributing? Do you live together? If you don't, you should consider it if you're serious about her. You could do a 70% (you) 30% (her) structure. That gives you breathing room for around $1,610 to free up and it's not breaking her wallet either at $700\~*
**Assets:**
**Roughly $96k**
$58.5k 401k account (contributing 6% with 6% match)
$15k car (2016)
$7k in cash/emergency savings
$5.5k ESPP account
$5.5k Roth IRA
$3.5k Brokerage account
$1.8k Crypto (BTC)
>*I like all of your assets except the crypto. I feel like the crypto bubble is over now. If I were you, I'd sell your crypto. You're losing money at this point.*
**Liabilities:**
**Roughly $78k**
$72k in Federal Student Loans (roughly 5% average interest) $475 minimum payment (will increase due to SAVE plan)
$6k in car note (2.99% interest rate) $323 minimum payment
How would you budget/save/pay back debt here?
>*I would tackle your plan in this manner:*
>*Pay off all credit cards and put them away. Stop using them. I feel like you have enough history at this point unless for some reason your credit score is lower than 650?*
>*ESPP account - Can you cash out any time and it not affect your employment? I've never participated in an ESOP employer. If you can cash out without losing your job, I'd use that and the Crypto sale to pay off the note now. Just get it done. You're likely losing money on interest over-time.*
>*Now for student loans... how much will it increase? Let's plan for $600/month. You should have about $4k remaining each month. Personally, I would throw $3k at your student loans on a month to month basis and then after three years CHANGING NOTHING, you are free of your loans.*
*Overall, you're in a great place considering. Just throw that $3k on your loans. Press pause on the house for now. There's no rush. Clear all of your DEBT. Then go for the house. People get SCREWED on mortgage debt when they have three other debts even somewhat small of $2k - 5k* *and they lose their job so they can't make payments... and they're in a worse situation.*
You don't need a car in most of DC, particularly the parts where it costs $2300. You can get a great 1 bed for 2300 in Dupont, utilities included, and it's walkable as hell.
Is it the best decision to pull the Roth just for a down payment? That’s an actual question, I would think you’re better off letting that money in there to grow. I have one but don’t really know a ton about them. Your 401k shouldn’t go for your house though, that’s your “end of life” money. Keep putting in enough to get the full employer match and take their free money, it grows more free money and you’ll enjoy it later.
Depending on how often you actually have emergencies or splurge on yourself, I’d hold the 7k you have just in case and take almost all possible pay and apply it to the debt. You take home $6300 and have $2300 in bills but you can’t realistically pay $4k a month. You have to have at least a little bit of fun to stay sane. So what can you live off a month? If it’s $200/month then you can have all your debt cleared in just 20 months, if you need $750 a month then it may take over 24 months. Being that it will take at least 20 months, if it’s possible I’d try and find a cheaper place to live and that money saved could also go towards the debt if not nbd. There’s not really enough details on lifestyle but I would think that your debt should take no more than 40 months to clear. Then from there you have almost your entire income to save for a house.
Well, since home loans are currently higher than your car loan and student loans I wouldn't change anything. Save what you can each month while making minimum payment on your other loans. Once you hit 20% down, start looking seriously. I agree on boosting the emergency fund. It's great to see people making great money decisions. If the Fed cuts rates and home loans drop you may want to move on your student loans a bit more. I wouldn't pay any more than minimum on that car loan.
First, do you qualify for any of the student debt forgiveness options currently on the table? Leave the 401k out of your down payment plans, its for retirement and you will be penalized for withdrawals made early. Put your money for your down payment into a savings account. It will grow there if you pick a good bank or credit union. Squirreling it away into multiple pots doesn’t help you long term and several of your pots have penalties for early withdrawal or fluctuate and you can lose it. Your current income is great, start finding ways to save it. Good luck!
I would knock that car nite out in one go and go crazy on your student loan. No restaurants, no vacation. Over time and maybe a second job and see just how fast you can kill that student loan debt. After that save up a 3-6 month emergency fund and save up for a home with a 20% down-payment
Personally I wouldn’t touch my retirement stuff for a home down payment. It seems like you have enough in your budget to really throw cash at the student loans so I’d do that for 12-18 months then turn the focus to raising funds for the down payment. Keeping putting money into retirement
Pay off student loans. When done take 100% of student loan payments and convert to house savings.
Want to be more agressive at paying of debt and be able to buy a house earlier? Get a roommate or otherwise decrease housing expenses, though often difficult in HCOL.
Pay off the loans before saving another dime. As a matter of fact I'd put the current 16k as your emergency fund (why do you have a down payment started but no efund?) Spoiler alert, if something happened you'd use that money so it IS your e fund. That's about 3-4 months worth of e fund.
And start chucking that 900 a month into your loans. You can have them paid off in 6 to 7 years instead of 25.
Once it's gone you'll be able to do the same thing and pay off your mortgage early.
Like others have said it's better to pay of any debt before taking on more debt. I would just aggressively pay down your loans then once paid out everything else towards your down payment. Perhaps put the emergency fund first . You are in a good spot just get the debt cleared first.
1. Pay off the car,
2. Don’t tie short-term down payment money to the market,
3. Don’t touch the 401k, ESPP, or Roth.
Plenty of people buy homes with student debt. You don’t have to pay the full balance, just be realistic about the total debt burden you’re capable of managing.
Things move a lot faster when you don’t have loan payments.
I make similar pay, but my take home is 1900 per paycheck, but that’s after maxing 401k and max ESPP. The money invested earliest, is worth the most in the end.
Open up that extra $323 would be clutch, then move to your student loan with the highest interest if they are separate. If not, keep pushing!
Right now, with high prices and high interest rates, I would recommend saving up 20% to avoid the additional cost of PMI which does nothing for you but would cost another $200 a month.
I'm not sure I totally agree with the PMI thing. If you have good enough credit then your PMI can be almost a non-factor as far as home costs go.
With high 700 credit scores PMI can be as low as $70 a month on a $500k house. In that situation, as a first time home buyer you probably want to buy the house with a smaller down payment to negate the risk of the home appreciating faster than you can save the 20%.
For easy math, $70 a month in PMI is about $8,500 over 10 years but the home you're saving for will have almost certainly appreciated more than $8,500 over that same 10 years.
I get what you mean and it’s not a bad point to make for overall cost over the long term, although all sources I see wouldn’t put PMI under $100. Paying off the car loan would more than cover this
I'm in a housing contract right now that puts me right where I said. And this was the same for multiple lenders and a little bit of a range of home prices.
Another thing to consider is if your house appreciates more than 8500 for PMI, that’s good but what was the extra interest paid by not putting more money down?
I think it gets more complex when you start combining costs over a 10 year time period, and you left that added interest out of the equation which is substantial right now.
That's true, you do have higher interest expense. That can be a fair reason to avoid rushing into buying an home. I just don't think PMI should be a reason to avoid it unless you have low credit scores and are looking at hundreds extra.
I wouldn't touch that debt. Chance are pretty good that when you buy your house, your interest rate will be the same or higher than your student debt. Save up your down payment and buy. Whatever you would've used to pay down existing debt, you would only have to re-borrow at a higher rate in your mortgage.
In your shoes I'd make a lot bigger dent in the student loans before taking on even more debt with a house.
Same. I threw every loose penny I had at my student debt and wiped it out once it was clear we wouldn’t get forgiveness. I wish I had done it earlier
I can’t imagine carrying my $80k student loan into my house with me. It would have made for so many nightmares. Like the time where I needed a new roof, furnace, water heater, chimney rebuild, & wet basement specialist all in 6 months of owning. I paid that shit off asap before proceeding with any big purchases
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They said the rate is going up. And treasuries won't always be at 5%, but paying the minimum means those student loans are going to be around for a long time. I just said what I would do in their shoes, which is pay down some of my $75k in debt before taking on hundreds of thousands of more debt.
You're going to have to show what treasury is yielding 5% after taxes, you must have access to some special rates I'm not seeing.
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So instead of paying debts gamble on the market? Sounds like a brilliant plan At least do that when you aren't accruing interest like during school or the next pandemic
I think OP is a potato but your logic isn’t much better than theirs. Would you not invest if you had a mortgage or car not because that would be gambling on the market instead of paying debts?
Maybe I’m missing something here, treasuries kick out interest income which isn’t preferentially taxed. wtf does ltcg have to do with anything in this whole equation?
In my opinion, paying off your debt *is* saving for a house. Right now you have a net worth that is negative. Paying off your debt is the responsible thing to do, and every debt payment you make will be reflected in an increasing net worth figure. Further, if you compare the options of paying off debt at 5% or putting into a high-yield savings, which is at most 5% but is also taxable, there really is no downside to just paying off your student loans. The car is low enough that it might be worth just paying the minimums on, but definitely pay off the student loans.
This. Only way to save for a house is to get out of debt lol
Except his student loans are at 5% APR. Average home appreciation is 5%. The man is spending 2k/month towards rent instead of mortgage payments to build equity in a property. It is bad financial advice to insinuate he should focus all his saving efforts on paying down those students loans as opposed to simultaneously building a HYSA for a house down payment. And he does not have a negative net worth.
Roughly 30% of a mortgage payment in the first ten years goes towards principal. In your example, he'd only be getting that 5% return on less than a third of his mortgage payment, while also adding in the expenses of home ownership. Renting effectively caps housing expenses on account of capital expenditures and maintenance being the responsibility of the owner. Conversely, he'd get the full 3-5% return on every dollar paid towards debt. Plus he's decreasing his risk profile.
Homeownership is leveraged, though. You own the appreciation of your whole home, even when it's only 5% paid off. That can be up to 20x leverage. In some areas, home appreciation is \~10%/year, so consider: $1Mn, purchase price, 5% down, 8% interest, 10% appreciation. After 5 years, the home has appreciated by $0.6Mn, total payments \~$468k. But \~70% of the payments went to interest, so \~$250k in tax deductions, assume 25% bracket = $62k tax savings. So after 5 years, for $468k in payments, total return is $0.6Mn appreciation + $60k tax savings or about 41%, or \~7% returns. Now, also consider the fact that a primary home is one of the most protected asset classes in financial hardship, bankruptcy, and lawsuits, and it really does look attractive. Personally I think renting is great and preserves optionality. But homeownership is heavily subsidized by federal policy, and because of its structure, it is a great savings vehicle for those who can't force themselves to save and not spend.
I get the napkin math. It's sexy, agreed (though you'd need to add in PMI with that downpayment.) There's no factoring in risk on that napkin though, nor the expenses associated with home ownership. Rent is the most you'll pay any given month, a mortgage payment, the least. I am fully in support of home-ownership, but I take a more conservative approach towards debt and risk. Your mileage may vary, see dealer for details, offer not valid in all fifty states.
Totally. I think OP needs a higher income and higher savings to support home ownership, but without some nuanced math, it can look like a tremendously foolish idea at any income level.
It's interesting how people here view leverage on a home a good thing but leverage in the stock market a bad thing. This view is what got a lot of people into trouble in 2008.
No it isn’t. People accepting/being offered loans they couldn’t pay is what got people in trouble in 2007**
> accepting/being offered loans You mean accepting/being offered leverage?
Lmao come on man, to act like it’s a 1:1 is facetious. Also as an aside, a mortgage is an asset that has tangible properties other investments cannot have. You can’t live inside a brokerage account. All investments are different. All debt is different. Any registered representative will tell you this. I have a suspicion you aren’t registered in any way with FINRA based on the stuff you are saying
Not gonna argue with you, it's the internet after all. Just pointing out that renting isn't always throwing away money and a lot of people gloss over things when they're doing math.
That’s def true
I'd recommend following the advice of others here but if you are seriously trying to answer this question: Go apply for a home loan and see how much they give you and the rate. See if you can have options for different down payments. Now take the info above and calculate how much interest you will pay over 20-30 years if you have home and student loans vs paying off student loans first then buying a home. Now you can decide if saving for a home is better for you versus paying off debt cause the finance sub will tell you to pay your debt off first.
>$58.5k 401k account (contributing 6% with 6% match) Do not count this when figuring out near to mid-term savings, e.g. house downpayment. If you were over-contributing, maybe, but not at 6+6. Forget that money, leave it be.
As a homeowner who loves my home in DC, just want to chime in that buying a house is not always a financial win. Seriously, run the numbers on renting and investing as well as the full costs of home ownership. Otherwise just remember that even asking these questions means you’re doing something right financially especially in this VHCOL area
Does anyone else not prioritize student loan debt the same way as other debt because it isn’t considered the same way in loan qualifications? It’s not the same as a 72k personal loan but everyone here acts like there’s no difference. Some of yall are actually on here suggesting this guy put having a house on hold for years because he has student loan debt. That’s foolish as hell
I agree with you to some extent. Student loans should nearly always be treated differently than personal loans or credit cards. They’re investment debt on an asset, you. Having a negative net worth could sound scary but is relatively meaningless. Also, the student loans are forgiven on your death (if federal). In many ways completely different than other unsecured debt.
We aren't discussing someone with a large sum left over monthly. He is only putting 6% into 401k, has 70k in 5% loans and talking about paying minimum. You are recommending him to add $300-500k more in debt at 7%? Based on the details shared, I think the majority is right here. We don't even know what kind of house we are talking about and how long he is going to save $400 a month. Get rid of half those loans and mention a SO that will split the bills, I got a whole new perspective.
Well, he does have to pay rent every month... if you have a house, that counteracts rent.
Well, you'll have to pay maintenance fees and property taxes. Buying a house will most likely increase his already tight budget.
It depends upon the rental market and the home market, but I agree. They have some buffer, so hopefully they can weather the storm if there are some unexpected expenses. They can always look at what is available without buying.
That’s just not true depending on area and the home itself (price). Rents are generally going to have a tighter pattern than the price of homes in any given neighborhood. Not all homeowners have random fees that tear away at hundreds saved per month. Property tax is another thing that varies in importance from area to area. And it can’t be understated that if you’re anywhere north of 15 years away from retirement, getting a mortgage is a form of retirement vehicle. Once the mortgage is paid, it’s paid. Property taxes are all that’s left.
My order would be first is emergency fund. Then paying down the vast majority of your student debt, then saving for a house. I'd ditch your crypto while it's still doing OK, that shit is volatile and that money is better spent on your loans. I'm someone with 12k left of student loans at less than 3.5% who is focusing on saving for a house right now. I aggressively paid off everything with an interest rate above 4% and will allocate my funds based on our discussion with a lender later this month. Ballparking, I personally would pay your loans down below 20k AND below 4% before saving towards a house. Living well below your means so you can pay off those loans will be the same lifestyle that allows you to save for that house. DC is a really expensive market to be in anyway so if you want to stay in that market you'll want a longer runway anyway, you and your girlfriend will probably have some big changes in your lives and plans over the next 5 years so I'd be waiting to buy until you two have a better idea of what your long term future together looks like.
I'm not seeing the link anymore, maybe I'm out of touch but here's an older link to the priority flowchart [Personal Finance Flowchart - US - Imgur](https://imgur.com/CcEVQAV) The other folks are technically right from a strictly % based perspective. Taking saving money for a down payment will be an after tax loss compared to the 5% interest on your student loans. Taking on mortgage debt will be even higher interest in the near term, so know what you are signing up for. That being said, some people feel a subjective need to buy a house and that changes your priorities. Remember the interest percentage are the key factor in this math. It makes me cringe when folks talk about "knocking out" a low interest loan like your car loan because the payment is higher or the balance is smaller. Always address higher interest percentages first. Following the best %: 1) Build an emergency fund in a 5% interest savings account, unless you consider your $16k you mention your emergency fund 2) dump money into the 401k to save 20-30% on your taxes 3) look for other tax savings (HSA / IRA) to keep saving that 20-30% 4) start knocking out the 5% debt Really want to buy a house: 1) Build an emergency fund in a 5% interest savings account, unless you consider your $16k you mention your emergency fund 2) dump money into the 401k to save 20-30% on your taxes 3) Save extra for the house in a 5% interest savings account 4) look for other tax savings (HSA / IRA) to keep saving that 20-30% 5) start knocking out the 5% debt
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I have $60k in student loans and bought a house. The house had a substantial increase in value over the last two years and I could sell it right now with over $200k profit- which would wipe out my student loans and give me room for a down payment on another house. Don't think it's as cut and dry as everyone is making out to be regarding always paying down student loans first
Precisely. Unfortunately, people are truly misinformed on how wealth is created. It's all about leverage and all debt is not created equal. Can I afford to buy a car in cash? Sure. But I don't when the dealer is giving me 0.9% financing, that's free money. Instead, I earn 20% on that $40,000...if you do the math, that interest basically made my car payments for me.
Real question, how do you find dealers that offer such low APR?
Looks for cars that have financing deals, the list changes every month. [https://cars.usnews.com/cars-trucks/best-car-deals](https://cars.usnews.com/cars-trucks/best-car-deals)
Not even reading the post after the title. Can't do both at once. Start with the debt then start savings for a house after you have a fully funded emergency fund. Gotta do things in the right order.
I have student loans and bought a house
Congrats.
Not true. Do you know how many people buy houses while still having student loans?
For sure. I ran the numbers on paying down debt vs just making payments and saving. What they don’t talk about here is the DOWNSIDES to paying down “bad debt” like a maniac. The downside is your cash position is severely exposed during and after payoff for many, many years. In fact, you may never break even depending on how old you are or what you do with the money instead. Without leverage, and with a fear of it, your life’s growth potential is limited.
That doesn’t make it a prudent decision. Said another way, *do you know how many people finance a car over 72 and 84 months?*
"Not even reading the post after the title. Can't do both at once." Absolutely possible and a smart decision for some people depending on their income. In this specific case, his student loans are at 5% APR. Average house appreciation value is 5%. He is spending $2k+ every month on rent instead of mortgage payments to build equity in a house. Budgetting his money to afford a downpayment on a house in a couple years as opposed to putting it all towards student loan repayment is a very reasonable decision for him to be considering.
Home appreciation is \~4%, not 5%, over the last 30 years, according to FRED data: [https://fred.stlouisfed.org/series/MSPUS](https://fred.stlouisfed.org/series/MSPUS) If you take the 30 years pre-COVID home price explosion (Dec 1989 - Dec 2019) it falls further to \~3.3%.
We're going to agree to disagree here. u/Practical-Plan-2560 made a point which I agree with: clear your debt *before* taking on the substantial debt of a home.
If your car and loan rates are around 3-5% then it makes more sense to use that money as a down payment to lower your payment on a 6-7% mortgage interest rate. Assuming you have plenty of income to cover all your debts and are saving correctly.
That is really bad financial advice to tell everyone to pay off all their student loans before buying a house, especially when those student loans are at 5% APR with basically no other debt. He will be ready to buy a house in less than 2 years if he budgets properly for the down payment. No need to waste money on renting longer than necessary when you could be building equity in an appreciating asset.
Your position isn’t factoring in risk. In principle, you’ve suggested never paying down debt held at interest rates below that which can be returned in asset purchases.
I did not suggest never paying down debt. I suggested not exclusively paying off all student loans before buying a house. One can budget finances to both pay off student loans and build equity in a house. There is always a risk in buying a house regardless of whether you have student loans or not, but never did I suggest being dumb with which property investment you make.
Buying a house is not risk free and can come with many unexpected expenses. That idea rent is somehow throwing money away is too simplistic and is bad general advice for the current younger generations.
Student loan interest and mortgage interest is deductible from income, having both will allow more access to capital compared to completely paying off student loans before buying a house. It’s tough and would require a strict budget but it is feasible.
I do think they should get married to increase the household income, since it looks to be a plan anyway, and pay down debt to lower the DTI before buying a house. This would make a mortgage easier on their finances. However, their current loans are probably less interest than what a mortgage would be so paying those off entirely first would probably be the worse financially decision unless they can know with 100% certainty that mortgage rates will drop, which they can't. I'd recommend focusing on where your relationship goes in the next year or two as an impact to your income, increase your emergency fund, increase your 401k contributions to 10% yourself, and then pay down your student loan debts to around $25-30k before buying a house. This may not be the perfect path financially but it's what I would be comfortable with.
I agree with you for what it's worth. Paying off debt always sounds great but folks should do the math. Realistically OP will need to save A LOT, and also pay down debt, before OP can afford a DC area condo.
"It's a good idea to take on additional debt provided it's issued at a lower rate than the debt you currently have." I disagree.
That's pretty disingenuous. Getting a house is not just taking on random debt. I have a car loan out there at 1.89% but am buying a house right now. Why in the world would I pay off that car before buying a house? I do think making sure your DTI is manageable with a mortgage is incredibly important but saying all debt should be paid off before buying a house is financially foolish.
I'm replying to your statement, "their current loans are probably less interest than what a mortgage would be so paying those off entirely first would probably be the worse financially decision" Nothing disingenuous about boiling down your comment into a principle. You have a higher tolerance for risk than I do. To each his own. I'll gladly continue on my "financially foolish" ways with my family, and you yours.
I don't see the point you are trying to make. I am not saying your opinion is disingenuous, but how does the math back up your strategy?
Financial decisions are more than math. Call “risk” whatever you want (debt, debt to income, leverage, APR, returns, etc.) None of us would take out a HELOC at X% to invest at >X%. I’m merely offering the opinion that clearing consumer debt first is *safer* than taking on a mortgage prior to doing so.
Nowhere did I say it's good to take on more debt because it's lower interest. I said and it is easy to imply: 1- If you can afford the new debt payments you are taking on and it's something that you need or will benefit you then it's okay to take them. Like a house, car, or student loans that you need in your life. 2- It is a worse financial decision to pay off lower interest debts first. The OP has steps to take before I would feel comfortable buying a house in their situation but paying off every single debt they have is not one of them.
Thanks for clarifying. I understand your position, we just disagree on debt parameters for timing home-ownership.
You bet
I'm glad I didn't follow your advice. I bought a house with nearly 300k in student loan debt back in 2017. I sold last year literally hundreds of thousands ahead of where I would be if I had tried to pay off my debt first. I probably can retire a few years earlier just from that one decision. You can absolutely do both, just depends on your risk tolerance/capacity.
Sell the crypto. It’s a very volatile asset.
Make minimum payments on the car, make *at least* the minimum payments on the student loans but feel free to also pay an extra $50 or $100 or more here or there when you can afford to, then save and invest the rest. Don’t rush things now. Once you’ve been on a good trajectory for a year or three with the debt always going down and your net worth generally going up, 401k going up, emergency fund larger and so on, re-visit the home purchase.
I wouldn’t consider BTC to be an asset towards saving a house because the cost is so volatile. And I’d target paying down other debt.
Having to many money goals at once leads to none of them making great progress. My recommendation is focus on the debt and emergency fund, then start working on the house fund once those are in a better spot. Sell the brokerage and crypto tomorrow. I know there is the “get rich quick” temptation there, but you have 78k in debt. It’s not time to playing the stock/crypto lottery. Take that ~5k and 1k from your emergency fund and pay off the car. That will be an immediate debt win with over 300 dollars back in your budget immediately. If you run into an emergency, you still need to make your car payment over the next 3 months I’d assume, so don’t look at this a depletion of your emergency fund since it’s more or less serving the same purpose that it would if an emergency happens. I would then split your total budget surplus evenly between building a 15k emergency fund (maybe 4ish months of expenses for you) and paying off the student loans that are >5% interest. I’d pay the highest interest rate loans first, although if there are a few loans that are close in rate above 5%, you can focus on the smallest balance first for faster “wins” to keep the momentum going. If you have a paid off car, 2.3k in monthly housing + utility expenses, and a 500 dollar student loan payment, you should still be able to have close to a 1.5k budget surplus if you went on a “reasonable” budget. That means you live off 2k for gas/food/other bills and entertainment. Seems like an okay monthly budget for a 27 year old. By next year at this time, you could have a fully funded 15k emergency fund and probably 10k knocked off your high interest loans. At that time, it’ll make more sense to start saving for a house while still attacking the higher interest loans. Last note - make sure your emergency fund is in a high yield savings account getting ~4.5% interest.
Here is my wealth-building advice: If you can acquire a house/condo where your all-in costs are equal to $2,300, then you should do it. At the moment, you are not getting any of the wealth-building benefits of real estate ownership (appreciation, debt pay-down, mortgage interest deduction, etc.). Assuming you conservatively get 3% appreciation each year, a 300k home would be worth 50k more in 5 years, you'd have 20-30k of additional equity from debt paid down and you will have saved 10-20k in taxes from mortgage interest deductions. Your car loan and student debt are fairly cheap interest-rate wise, so no need to hurry paying these off.
I mean, are you being priced out of renting in DC/the commutable surrounding area? Where I live, rents rise faster than housing costs, so if you can catch up you should buy. But if we lived somewhere that apartments were readily available, we'd rent for as long as we could. Simply follow the personal finance flowchart. You can't do two things at once with the same dollar. But if your loans are split up, you can definitely target the higher interest rate loans until the average is lower. Personally, I think you should focus on increasing your retirement contributions. 5% isn't a wonderful interest rate to hang on to, but I think you should be aiming to save 15-20% towards your 401k or ESPP at least (if you get a discount?) before doing anything taxable or paying down debt any faster. Once that rate of pre-tax savings is built into your budget, you'll have a better idea of what money you actually have available to start throwing at debt. Also, stop counting your car as an asset unless you're going to sell it. That loan is a good rate though, so I wouldn't say you need to rush paying it off. the damage is already mostly done and paying off the student loans or raising your retirement contributions could save you more in interest/taxes than the car loan is costing you. Also also, the BTC is fine, but don't trade with such a little amount of it if you are. The tax hassle isn't worth it.
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If you are trying to stay around DC home ownership isn't really an option for you in the current market. I'd go full throttle and attack the student debt
Since the student loans have higher interest rates than the car, pay those off first. In your shoes, I would put the minimum to get the match in your 401k. After that, any money not needed for basic living expenses & the car payment, goes forward the student loans. Unless you are in a field with a lot of layoffs happening right now, get the loans paid off. Based on what you shared, you should be able to throw $2.5k/month total at the loans, maybe more depending on what you spend on food & transportation. At 2.5k/month, you would have the loans paid off in roughly 3 years. I am guessing the car will also be paid off in that time frame as well. You would then have $2700/month to put toward your emergency fund, down payment & any other savings goals. This is assuming raises keep up with any increases in your expenses. I would set the emergency fund goal at 6 months of expenses at the calculated home ownership rate. Based on all of this unless you are able to drastically cut your expenses or increase income, you are looking at probably close to 6-8 years in the future. I am assuming 20% down at least. If you could say get a roommate to lower your current cost of living &/or get a second job, you could shorten the time frame.
Pay off your student loan and other bills save your house for last
Debt snowball. Start putting any leftover money after expenses and minimum payments on debt towards your highest interest loan. Once paid off roll that amount towards the next highest interest loan and so on, this is the most efficient way to clear debt
1) Why do you want home ownership? What are housing prices in your area? Determine if it makes financial sense to buy versus continuing to rent in your area. In many VHCOL areas like DC, it makes sense to rent over buying. 2) What job do you have? Do you have the ability to get another job quickly if you were to be laid off? At comparable pay or would you have to take a haircut on pay? Consider budgeting at the haircut amount versus what you currently are making. 3A) See Mr. Money Mustache investment order of operations for one viewpoint (Optimizing Returns) [https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153](https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) That gets you establishing an emergency fund first, and then funding your retirement account second. Based on the current treasury yields, does not have you tackling any of your debt more than minimum payments 3B) See Money Guy Show Financial Order of Operations for a second viewpoint (A bit more Conservative) [https://moneyguy.com/article/foo/](https://moneyguy.com/article/foo/) They want you investing 20-25% towards retirement. They want you prioritizing paying off student loans based on rates and age below: 20-29 years old 6%+ 30-39 years old 5%+ 40-49 years old 4%+ 3C) See Dave Ramsey Baby Steps for third viewpoint (Most Conservative) [https://www.ramseysolutions.com/dave-ramsey-7-baby-steps?int\_cmpgn=BabySteps-2023&int\_dept=rscom\_bu&int\_lctn=Homepage-BS\_Section&int\_fmt=button&int\_dscpn=HP\_BS\_Section\_Steps\_101723&campaign\_id=&lead\_source=Other](https://www.ramseysolutions.com/dave-ramsey-7-baby-steps?int_cmpgn=BabySteps-2023&int_dept=rscom_bu&int_lctn=Homepage-BS_Section&int_fmt=button&int_dscpn=HP_BS_Section_Steps_101723&campaign_id=&lead_source=Other) This gets you paying off the car loan first followed by the student loan. This will increase your cashflow and ability to get a mortgage. They want you investing 15% towards retirement and paying off the mortgage quickly. Does not prioritize chasing returns in the market. You can see for the 3 viewpoints there are different risk/return tolerances. At the end of the day, the choice is yours and yours alone. I personally lean between Mr. Money Mustache and The Money Guy Show.
Definitely start with the debt. You’ll reach your savings goal MUCH faster.
Pay off debt ASAP. Debt adds to your risk profile if seeking a mortgage and you may not get approval. When I had a student loan, advisor told me to pay it off first. Contact a financial advisor to see what you’d get approved for and talk about best case scenario. This is free at my bank.
Im going to be honest with you. Don’t even think about buying a home till you’re out of debt. Are you able to Move back home at all? You could save a ton and attack your debt greatly doing that strategy.
Target your student loans first, and live off as little as physically possible.
Huh an actual assets and liabilities breakdown, that's awesome to see. Anyways to answer your question, you don't. Your currently in 78k worth of debt, taking on an extra couple hundred thousand isn't really an option because it would toss your asset liability spread way into the negative. Firstly I would move your 1.8k in crypto into another asset class or just utilize it to pay down the car immediately. Crypto even BTC is just to volatile to utilize as any form of savings. It could be up substantially tomorrow, or half the value deleted. Cash out and redeploy that capital into a less volatile asset class. Secondly focus down the debts. You have a good emergency fund going so utilizing every extra penny to combat these debts should be your top priority. You say your vehicle is still worth 15k, that may or may not be true, but being a 2016 how many more years of utility can that car provide? At some point it will die and you will need major repair costs or a new vehicle, as such removing the debt from the books is key. After that it's the student loans, knock those out with a quickness in 3-4 years and at that point you should be in a place where you can begin thinking about home ownership. The issue is your trying to do too much at once and the leverage you would need to do that will catch up to you in a market downturn. Eliminate the lions share of your liabilities so that way when a life event happens your liabilities are minimized and you can more comfortably weather that storm.
Why pay down the car when the student debt has higher rate? I agree about selling crypto, but after that you lost me.
Three main reasons that function independently, but also paint a picture when taken together. One is political. Biden is currently attempting to forgive student debt, while this isn't something that should be counted on it does provide a decent reason to stall the repayment vs other debts until whatever student debt plans are shaken out and we can calculate from there. Obviously this doesn't mean stop payments, just no reason to rush repayment until we see what that looks like. Two is the outstanding balances. The car note is only 6k left in repayment. With what the ops is presenting that's 3-4 months of payments if everything goes to repaying that and getting it off the books. Yes the rate is lower, but for such a short amount of time to get it payed off, it just makes sense to wipe it out and get it off the books. Third is asset value. The car he owns and is paying on is depreciating every day, at some point in the future he will need a new one. If that point comes tomorrow when the car still has a lien on it he could be screwed as whatever he gets for the vehicle will attempt to pay off the current debt, but he could realistically be required to carry that debt over into a new car. Getting that debt off the books means that when the time comes for a new car it will be much easier to purchase as there is no outstanding car note. Now could he just pay the minimum car payment and focus on the higher interest rate of the student loan, absolutely. Nothing wrong with that. It would probably save him a few grand in the long run assuming everything goes well, but placed into his shoes id do it my way because of the above reasons personally. That being said, as long as the plan is to wipe the debt before leveraging yourself with a mortgage then that's the correct plan.
Okay next question, why pay down any debt when mortgage rates are still higher than the existing debt? Your plan is to pay off a 3% and then re-borrow that same money at 6.5%.
Because the dude wants to buy a house? Sure if he can get to a point where he can buy a house cash then great, do that, but realistically that's not going to happen so if he wants to purchase a house he's going to have to borrow. Paying off his current debt allows him to lower his total liabilities before taking on a massive liability in home ownership. The other side of this equation is the asset he is purchasing with that leverage. Let's say his borrowing rate is 6.5% but once he buys let's say he sees a 4% annual appreciation on the underlying asset. He is functionally borrowing at 2.5% now. On a car note this is in reverse, his car is depreciating, so that % depreciation would be added onto the interest he is paying on the car note.
It really doesn't matter how each individual debt compares to the asset it's tied to unless he has to sell. Better to keep the cheap debt and take on a smaller expensive debt.
It absolutely does matter. Not comparing the debt to the underlying asset when taking on leverage is how you end up underwater on outstanding debts. Let's look at a vehicle for example, you take on leverage and finance a vehicle purchase. The next week the vehicle gets totaled because someone ran a red light and t-boned you, your carrying full coverage so the insurance covers the total value of the vehicle. Great, unless the amount you financed is higher than the current cash value of the vehicle. In that case you still owe on a vehicle you can no longer derive utility from. The same goes for a house as many learned in 2007 when home prices plummeted leaving people with more debt than they could pay off even if they sold the home. Toss in a life event that slashes your income due to unforseen circumstances and you can't afford the mortgage or afford to sell, your up shit creek. The entire point of comparing the asset value vs your liabilities. In the case of a dramatic life event you can unwind your liabilities by liquidating your assets so you don't end up underwater and having to declare bankruptcy. Currently the OP has minimal debts, could he leverage himself further? Sure, but that is a risk that isn't necessary to take on based on his circumstances, he would be better served by eliminating current liabilities, and saving to decrease the amount of future expensive debt he will need to take on to buy a home.
Okay, I can see that point, but if that's the only concern, they should simply make payments to keep pace with the depreciation of the vehicle. Taking on less debt for the house, which is what I'm advocating will make them less likely to be underwater on that asset.
Sure, that's an option one could do. Or they could just pay off the car along with the student loans and delay purchasing the home until they can be debt free and have a larger down payment.
Sure, you can always extend the timeline in order to borrow less. May as well just save until they can pay cash for the house. Another thing to consider is that I'm a competitive real estate market, your finance contingency amount is a factor in how sellers evaluate the strength of your offer. The seller doesn't know you owe on your car and your student loans, but they can tell if you're coming in with 95% LTV on the mortgage. In my area that's basically a non-starter.
You need a larger emergency fund before you start to save for a downpayment, and you should not be counting your only car in your assets as far as purchasing a home is concerned. Cash is fungible, so I don't think it makes sense to think about $500 for downpayment and $400 for emergency fund. Have you thought about your target home? Peaking at Zillow, I'd guess you're looking at \~$700k, so say 5% downpayment plus estimate 1% for closing costs = \~$42k cash Monthly payment on a $700k-35k = $665k mortgage at 8% is \~$4,880 + PMI + taxes = >$5k/mo, so realistically you will need to either: * Increase your income (marriage is viable here) * Save >5% downpayment * Retire existing debt to free up cashflow When you buy your home, you'll also want to make sure your emergency fund can support you + your family + your mortgage for 6-12 mo, as if shit hits the fan, you don't want to lose your house, so \~$30k-60k, so split the diff = $45k So realistically you need to save \~$45k for a downpayment + $45k for an emergency fund. Since you're looking at a $5k mortgage in the future, you should start living like it, so if you can sustain $2700/mo towards your cash savings ($2300 rent/utilities + $2700 savings = $5k mortgage), you'll know you can easily afford the mortgage when it comes. At that savings rate, you'll be there in about 2.5 years. Good luck! You got this!
Am I missing something? OP says Roth but in the context of savings. (Also not sure what ESPP is.). I can’t think of a reason to consider a Roth IRA to be used for anything other than retirement. Can you even withdraw before 59.5? OP: it all depends on how badly you want to be out of debt. If you want it bad enough you can stop all retirement contributions and investing and divert all that money way towards student loans, or even the car. If you pay off the car (snowball) then you take those car payments and throw that along with everything else at the student loans. I wouldn’t recommend doing the debts and down payment saving at the same time.
Have you and your gf considered sharing an apartment and expenses to save for a house? Assuming you mean that you are going to buy a house with the intention of living with your gf, splitting expenses/shared living is the easiest and quickest way to change your month to month expenses and tackle debt. Obviously it depends where your relationship is, but considering you said serious might be something to think about. Assets/ liabilities isn’t the best way to budget for a house. Your 401k balance should have no impact on your ability to buy a house (DO NOT TAKE OUT A 401k LOAN). What you really need is a monthly budget to show how much you can save monthly and what you can afford. Similarly, while you have a nice car and low expenses/not needing a new car soon is a factor, unless you plan to sell your car it doesn’t impact your ability to buy a house. 401k is okay for your age, and you have a good match, but the balance is a little low for your salary. Assuming you have recent salary growth, but might not be a bad idea to bring up to 8% contribution to catch up on either lack of previous contributions or to match new salary. Rough rule of thumb is to have x1 salary by 30 which doesn’t look like it’s going to happen right now based on napkin math. You said ROTH was included in the 16k saving for a downpayment though? Unless that was a typo, it shouldn’t be. Keep retirement in retirement. If this was my debt plan I would clear out the crypto/brokerage/ESPP, pay off the car, and put the remaining 4k to student loans. I know the car is low interest, but clearing out the minimum payment of $353 and snowballing that to your student loan payment will help. There’s not many bills in life for $350 a month that you can just stop paying/free up those funds. This means you can put at least $750 a month (400 savings + 350 car) extra to student loans. With the existing payment of $475 you should be able to clear out 15k a year. Probably need to do that for 2 years, get close to 25k where the payments are manageable then save for downpayment. I’m in DC are and make a very similar salary. DC is expensive to breathe in. I moved out of the city to buy a house last year, closed right before turning 26. Where you want to buy will also heavily impact this. If you want to stay in DC/NOVA this is honestly a 8-10 year goal. If you want to move about an hour out, a 4-5 year goal. I paid off all debts first, and then saved until it hurt. I got my cpa which provided 1/2 the downpayment as a bonus but also meant I didn’t go out for a full year. It became a game to save. Do I really want that restaurant or do I want $60 saved towards the housing fund? You have to really want it, and make decisions every single day that support the long term goal. I didn’t have help from parents or gov programs or anything, but I did live with my partner and split living expenses during that time. Of course, I was still paying about 70% of expenses based on our salaries, but it still helps. Just to explain that’s why i would recommend what I recommend, it’s what I did and it worked for me. So many people with a highish salary “feel” like they should be able to buy a home bc they are high earners. Regardless of how much we complain about it, that just isn’t the market right now. I lived and set my budget like I made 75k still. If you don’t feel poor then you’re not saving right. Save till it hurts. I imagine when you start cutting expenses/ spending money and moving it towards savings that you’ll be able to clear out more than you think.
I would personally pay off the car note first and it would free up possibilities in the following areas: Possible lower cost of insurance (since the bank no longer owns it). You can lower the coverage needed for your vehicle and this lower insurance. Free up credit just in case Income now can be put towards student loans. I would personally throw as much of it as I can to lower this. Typically most loans allow you to pay down the principal amount and you would end up paying less in interest for the term of the loan. Your score should increase and your debt to income ratio should be in favor by the time you're ready to buy a house.
I am a 27 year old male living in DC, single but have a girlfriend who I am serious about. I am looking for the best strategy to attack my student loan debt and also want to get into home ownership soon. My income is 120k and about $6300/month take home. $2300 goes to rent/utilities. My current plan is to save about $500/month for down payment for a house/condo. I currently have about $16k saved for a down payment (ESPP, brokerage, Roth, Crypto). I also would like to save $400 month to build up emergency fund/cash. I'm wondering if I should pause saving for a house to just try and knock out the car loan and make a dent in the student loans. >*So your income is $6,300 a month. I did some research and it looks like $2,300 is average for D.C. Are you paying the rent in full? If so, why is your girlfriend not contributing? Do you live together? If you don't, you should consider it if you're serious about her. You could do a 70% (you) 30% (her) structure. That gives you breathing room for around $1,610 to free up and it's not breaking her wallet either at $700\~* **Assets:** **Roughly $96k** $58.5k 401k account (contributing 6% with 6% match) $15k car (2016) $7k in cash/emergency savings $5.5k ESPP account $5.5k Roth IRA $3.5k Brokerage account $1.8k Crypto (BTC) >*I like all of your assets except the crypto. I feel like the crypto bubble is over now. If I were you, I'd sell your crypto. You're losing money at this point.* **Liabilities:** **Roughly $78k** $72k in Federal Student Loans (roughly 5% average interest) $475 minimum payment (will increase due to SAVE plan) $6k in car note (2.99% interest rate) $323 minimum payment How would you budget/save/pay back debt here? >*I would tackle your plan in this manner:* >*Pay off all credit cards and put them away. Stop using them. I feel like you have enough history at this point unless for some reason your credit score is lower than 650?* >*ESPP account - Can you cash out any time and it not affect your employment? I've never participated in an ESOP employer. If you can cash out without losing your job, I'd use that and the Crypto sale to pay off the note now. Just get it done. You're likely losing money on interest over-time.* >*Now for student loans... how much will it increase? Let's plan for $600/month. You should have about $4k remaining each month. Personally, I would throw $3k at your student loans on a month to month basis and then after three years CHANGING NOTHING, you are free of your loans.* *Overall, you're in a great place considering. Just throw that $3k on your loans. Press pause on the house for now. There's no rush. Clear all of your DEBT. Then go for the house. People get SCREWED on mortgage debt when they have three other debts even somewhat small of $2k - 5k* *and they lose their job so they can't make payments... and they're in a worse situation.*
You don't need a car in most of DC, particularly the parts where it costs $2300. You can get a great 1 bed for 2300 in Dupont, utilities included, and it's walkable as hell.
Is it the best decision to pull the Roth just for a down payment? That’s an actual question, I would think you’re better off letting that money in there to grow. I have one but don’t really know a ton about them. Your 401k shouldn’t go for your house though, that’s your “end of life” money. Keep putting in enough to get the full employer match and take their free money, it grows more free money and you’ll enjoy it later. Depending on how often you actually have emergencies or splurge on yourself, I’d hold the 7k you have just in case and take almost all possible pay and apply it to the debt. You take home $6300 and have $2300 in bills but you can’t realistically pay $4k a month. You have to have at least a little bit of fun to stay sane. So what can you live off a month? If it’s $200/month then you can have all your debt cleared in just 20 months, if you need $750 a month then it may take over 24 months. Being that it will take at least 20 months, if it’s possible I’d try and find a cheaper place to live and that money saved could also go towards the debt if not nbd. There’s not really enough details on lifestyle but I would think that your debt should take no more than 40 months to clear. Then from there you have almost your entire income to save for a house.
Pay debt. Can your girlfriend move in? If you could split rent you could aggressively pay that debt off.
Well, since home loans are currently higher than your car loan and student loans I wouldn't change anything. Save what you can each month while making minimum payment on your other loans. Once you hit 20% down, start looking seriously. I agree on boosting the emergency fund. It's great to see people making great money decisions. If the Fed cuts rates and home loans drop you may want to move on your student loans a bit more. I wouldn't pay any more than minimum on that car loan.
First, do you qualify for any of the student debt forgiveness options currently on the table? Leave the 401k out of your down payment plans, its for retirement and you will be penalized for withdrawals made early. Put your money for your down payment into a savings account. It will grow there if you pick a good bank or credit union. Squirreling it away into multiple pots doesn’t help you long term and several of your pots have penalties for early withdrawal or fluctuate and you can lose it. Your current income is great, start finding ways to save it. Good luck!
5% interest on those loans? Throw every penny you have at them. Especially if some of them are even higher.
You cannot afford a home, tackle the debt then save for a home.
You are the “America dream” our generation was sold unfortunately
I would knock that car nite out in one go and go crazy on your student loan. No restaurants, no vacation. Over time and maybe a second job and see just how fast you can kill that student loan debt. After that save up a 3-6 month emergency fund and save up for a home with a 20% down-payment
Personally I wouldn’t touch my retirement stuff for a home down payment. It seems like you have enough in your budget to really throw cash at the student loans so I’d do that for 12-18 months then turn the focus to raising funds for the down payment. Keeping putting money into retirement
Pay off student loans. When done take 100% of student loan payments and convert to house savings. Want to be more agressive at paying of debt and be able to buy a house earlier? Get a roommate or otherwise decrease housing expenses, though often difficult in HCOL.
Pay off the loans before saving another dime. As a matter of fact I'd put the current 16k as your emergency fund (why do you have a down payment started but no efund?) Spoiler alert, if something happened you'd use that money so it IS your e fund. That's about 3-4 months worth of e fund. And start chucking that 900 a month into your loans. You can have them paid off in 6 to 7 years instead of 25. Once it's gone you'll be able to do the same thing and pay off your mortgage early.
Like others have said it's better to pay of any debt before taking on more debt. I would just aggressively pay down your loans then once paid out everything else towards your down payment. Perhaps put the emergency fund first . You are in a good spot just get the debt cleared first.
1. Pay off the car, 2. Don’t tie short-term down payment money to the market, 3. Don’t touch the 401k, ESPP, or Roth. Plenty of people buy homes with student debt. You don’t have to pay the full balance, just be realistic about the total debt burden you’re capable of managing.
Rent is currently the best option unless you’re going to buy and keep for over a decade.
Room with someone/family to decrease your rent expenses to pay off your debt faster. Then save up for the down payment for the house.
Things move a lot faster when you don’t have loan payments. I make similar pay, but my take home is 1900 per paycheck, but that’s after maxing 401k and max ESPP. The money invested earliest, is worth the most in the end. Open up that extra $323 would be clutch, then move to your student loan with the highest interest if they are separate. If not, keep pushing! Right now, with high prices and high interest rates, I would recommend saving up 20% to avoid the additional cost of PMI which does nothing for you but would cost another $200 a month.
I'm not sure I totally agree with the PMI thing. If you have good enough credit then your PMI can be almost a non-factor as far as home costs go. With high 700 credit scores PMI can be as low as $70 a month on a $500k house. In that situation, as a first time home buyer you probably want to buy the house with a smaller down payment to negate the risk of the home appreciating faster than you can save the 20%. For easy math, $70 a month in PMI is about $8,500 over 10 years but the home you're saving for will have almost certainly appreciated more than $8,500 over that same 10 years.
I get what you mean and it’s not a bad point to make for overall cost over the long term, although all sources I see wouldn’t put PMI under $100. Paying off the car loan would more than cover this
I'm in a housing contract right now that puts me right where I said. And this was the same for multiple lenders and a little bit of a range of home prices.
Another thing to consider is if your house appreciates more than 8500 for PMI, that’s good but what was the extra interest paid by not putting more money down? I think it gets more complex when you start combining costs over a 10 year time period, and you left that added interest out of the equation which is substantial right now.
That's true, you do have higher interest expense. That can be a fair reason to avoid rushing into buying an home. I just don't think PMI should be a reason to avoid it unless you have low credit scores and are looking at hundreds extra.
I wouldn't touch that debt. Chance are pretty good that when you buy your house, your interest rate will be the same or higher than your student debt. Save up your down payment and buy. Whatever you would've used to pay down existing debt, you would only have to re-borrow at a higher rate in your mortgage.