Financial question plus another

[Backroads]

So, Husband and I have been looking at finances and our money and all that stuff.

 

We will have enough money to put us debt free (a car loan plus student loans, the student loans being the vast majority of debt) by summer.

 

OR

 

We could take that money and get a little house.

 

On one hand, being debt free would be awesome and give us more wiggle room each month.  On the other hand, it may be years before we have enough money for a down payment again and most of this debt is student loans.

 

Any input or thoughts?

 

The other question:  We're getting a little antsy to move out of my grandmother's basement apartment (we want the baby to have her own room, all of our stuff is in a storage unit, we're living on top of my grandmother's stuff she doesn't want to move somewhere else, etc.)  But when we brought up the possibility of either buying a house or renting a place, my grandmother became rather sad (why do you want to leave me?)  She's about as healthy as any 85-year-old, has many friends, etc.  But she is getting absent-minded and she loves having the company about.  Basically, we're now wondering if we shouldn't hang around until another grandchild expresses a desire to move into the basement (we're like the 4th set over the years).

[The Folk Prophet]

Go with the debt free thing. Absolutely, no question! You will not regret it.

[SpiritDragon]

That's a tough one. On the one hand getting out of debt is plain awesome, and overall saves money because you pay less interest. Buying a home is also pretty awesome, but may be worth the wait.

 

Almost everything I hear about the US economy is doom and gloom here in Canada. I hear about how everything is going to go belly up and inflation will be crazy. If this were to happen you'd be glad not to have inflated interest on your loans and mortgage.

 

Prayer is going to give the best answer.

 

All that being said I have heard numerous church leaders speak about getting out of debt, and never once have I heard home ownership pounded across the pulpit.

[The Folk Prophet]

All that being said I have heard numerous church leaders speak about getting out of debt, and never once have I heard home ownership pounded across the pulpit.

 

Exactly!

[Guest]

Pay off debt and then save up for downpayment on a house.

 

A little bit of inconvenience with the basement is worth the freedom of being completely debt-free.  I'd even go so far as to say stay at your grandma's until you can get 40% to put down on a house.

 

The only reason that would cause me to advice otherwise is if staying in the basement becomes detrimental to your psychological health especially with the baby coming.

[EarlJibbs]

There is always doom and gloom in the future, we know it will happen. But we must live in the present and prepare for the worst.  I would ask myself a few questions.

 

1. If I buy a home now and forgo paying off the other debt, how long will I be paying on the "other" debt while I now have a house payment?

 

2. How long will it take me to save up the same amount or more for a down payment on a house if I pay off my current debt?

 

Going into a house payment otherwise debt free does sound appealing and probably a very good choice. However, interest rates are down and waiting could have you paying a higher payment. On the flip side, even if you wait and interest rates rise you could be in a better situation to handle the ups and downs in life with limited debt. I would definitely start crunching some numbers for the present, but also see what difference scenarios could happen in the future if you are paying more interest on the house. Remember, rent rises with a better economy as well as interest rates. Renting could still have you paying a much higher payment in the future than if you were to buy a home now.

 

Not an easy decision.

[beefche]

Go debt free.

 

There are other costs to buying a house besides the down payment.  You'd be surprised how much money you need to move into a house. 

 

It sounds like your grandmother also needs you with her.  As long as living there isn't an obstacle in your marriage, I vote to stay there as long as you can and save your money to put at least 20% down on a house plus have plenty for the expenses needed to move into your own home.

[slamjet]

My .02, because I can...

 

I join in the chorus DEBT FREE!  There are all kinds of cost in not only purchasing but also maintaining a home that will only push you further into debt.  So if you can deal with Grandma for a bit longer, do it.  You will be on a much better footing going into a home debt free.  Besides, you don't want to have any regrets because I bet that once she passes on, you will feel like you ran away from her.  I know I wish I still had my grandma around, severe demention and all.

[Just_A_Guy]

FWIW:  I wouldn't buy the house unless you can do it AND have, from the get-go, a good $10K in savings as an emergency fund (and $15K is better). 

 

We bought our house in the fall of 2012 and afterwards had about $8K left over in savings (and an obscene amount of student debt, but no car loans/credit cards and, we thought, pretty solid income).  A couple months of saving and a couple tax refunds later we had barely made it up to $15K--and then our firm did an across-the-board 25% pay cut, which has been my salary for the last nine months or so.  If we hadn't had that savings, we'd have been unable to meet the mortgage and could quite easily be facing eviction right now.

 

Without a rainy day fund, a house is just more heartburn.

[pam]

I'm with others in saying do the debt free thing.  

 

It's unbelievable the expenses that come up with owning a home that you just don't think of.  

[Jane_Doe]

Speaking as someone who just bought a house and had a baby, I would stay at Grandma's (if it's not mentally/emotionally taxing).  Logic being:

 

1) Grandma's are great for baby's and they love them.  If you have a good relationship with her, why not let her help out.

2) Setting up a new house is VERY expensive even after the downpayment.  I was amazed on how much husband and I spent on curtains, repairs, and other very nessecarry improvement.  It's also taxing on my very limited energy (newborns are exhausting).

3)  Once you're debt free, you can save up for that down payment so much more effeicant.  Ideally, I'd recommend 20% downpayment.  If you pay less than 20%, they make you buy "mortgage insurance" which pretty much entails hunderd(s) more on each payment.  This fee exists solely for the bank's benifit and will stay for the entire length of the mortgage. 

4)  It is not mooching off of grandma if you're actually saving money each month for the house, so you don't have to be concerned about pride-issues.

[Backroads]

Thanks for the input!

 

 

To be clear, moving out from my grandmother's is a possibility even if we forgo the house.  It would be great for saving even more money after getting out of debt, but we are wanting our own space.  But we could probably hang out a little while longer.

[Iggy]

Speaking as a child that grew up with a Grandma in the house - stay put for as long as you can. Let your child and grandma really bond. Mom's mother lived with us - she had her own room, which I shared until I was 14. Sometimes it was a real trial being her grandchild - but in retrospect, I wouldn't have had it any other way. Her son's children wished she had lived with them - she probably would have had more privacy - but they never offered to have her. 

 

You and your husband get along great with her, so should your child. AND I am predicting that her insight and help with be priceless after the baby is born. 

 

Going into a house, debt free is rare - but if living with Grandma for even another year will accomplish that, Do It.

[Backroads]

Oh, one more clarification:

 

I'm not pregnant.  The baby I refer to is 13 months and currently sleeps in our room (more than half the time in our bed) and she still is rarely sleeping through the night but it's so hard to sleep-train a baby in the same room!

[skippy740]

I will also state that it would be better to pay off your debts.  But I want to give you a different idea on HOW to go about it.

 

It is SO HARD to build up your emergency funds in the first place.

 

Another consideration... is to take out a SECURED LOAN against your savings.

 

https://www.dcu.org/loans/savings-secured.html

 

Take a look at the above link as a possible idea.  Notice the rate you could pay on a Certificate-Secured Loan:  Only 3% above the rate the CD is earning.  As you pay it back, you have less "pledged as collateral" for the loan.  3% is a GREAT rate above the CD rate (which is practically nothing today).

 

Another part of this, is my own economic opinion.  Deflation will be a reality over the next few years.  I think home values WILL go down... and being debt free (owing yourself via collateralization) and having cash on hand will make your next home purchase a bigger value for you and your family.  If/When deflation hits, it won't have ANY affect on your current debts... but it can help you to get a better house for the money when you're ready to buy.

 

I try to follow Harry S. Dent Jr. on his economic predictions using demographic spending trends... and that's what he's predicting for the next few years.

[beefche]

BTW, I wouldn't deplete your savings completely by paying off your debt.  Always, always, ALWAYS have an emergency fund.  Keep it at least $1,000, but perferably 3 months of gross income.  Ideally, you should have at least 12 months of gross income saved in a manner that you can access it easily if an emergency arises. 

[Quin]

What I have been told by financial people I trust (business & Econ professors)...

Pay off all your debt EXCEPT student loans.

The reason given is that student loans are

- classified as a different kind of debt, entirely... By both credit beauros & judiciary (aka 100k of student debt not even blinked at, while 5k of credit card debt can be a big deal).

- once consolidated & amortized over as long a period as possible... The interest rate = inflation rate = free money

________

To steal JAGs line, though, we're just guys/gals on the Internet.

While you know many of us... And I'm sure we all trust where we got our own a dive from... I'd personally recommend you go hire someone from Columbia or Yale with their MBA and years in the financial industry to look over your finances and come up with long/short term plans for your finances.

Q

[dahlia]

I dig the debt free thing. I also dig a child having space to move around and parents being in their own place.

 

Since the interest rates are low and considering your living situation, if you can find an inexpensive house in good shape, I would go for it. BUT  I would not spend a lot on furniture, etc. I looked around for awhile before I found a townhouse that didn't need me to come in and change stuff (and I still changed stuff and had some repairs). People spend a lot of money once they get a house. If you can get a place that allows you to put money away for repairs and personal savings, then I would go ahead.

 

That said. I think you need to get out of your grandparents' place. What is wrong with renting a house? It might slow down your downpayment savings to pay rent, but you wouldn't be financially reponsible if something went wrong and you'd have the space your young family needs. If you don't have experience living in a house as an adult, renting may be a good idea anyway, so you can see what kind of problems and expenses arise, even if you don't have to pay them yourself.

 

I agree with others - you can leave your student loan debt and don't use all your savings for debt repayment; keep some in reserve.

[skippy740]

________

To steal JAGs line, though, we're just guys/gals on the Internet.

While you know many of us... And I'm sure we all trust where we got our own a dive from... I'd personally recommend you go hire someone from Columbia or Yale with their MBA and years in the financial industry to look over your finances and come up with long/short term plans for your finances.

Q

 

Uh... no.  These guys are trying to, or are working for more HNW firms, such as Goldman Sachs.  It doesn't require an advanced degree to know how to help someone with their finances, especially with a basic question like this.

 

However, you DO want someone who has some experience and some education beyond basic licensing courses.

 

http://www.letsmakeaplan.org/

 

http://www.chfchigheststandard.com/

 

http://www.iarfc.org

 

Heck... even your local BANKER could probably be of some good help in this area.

 

(I'm a ChFC charterholder myself.)

 

Someone with an MBA and "years of experience"... are really trying to do more tactical and strategic asset allocation and market predictions for the future.

 

However, just because I said I'm a ChFC doesn't mean that I had all the facts/information in order to make a professional recommendation.  I simply looked at the available information, and with what I knew, gave you something else to consider.

[skippy740]

What I have been told by financial people I trust (business & Econ professors)...

Pay off all your debt EXCEPT student loans.

The reason given is that student loans are

- classified as a different kind of debt, entirely... By both credit beauros & judiciary (aka 100k of student debt not even blinked at, while 5k of credit card debt can be a big deal).

- once consolidated & amortized over as long a period as possible... The interest rate = inflation rate = free money

Q

 

If you're wanting to improve your credit reports... you'll want to avoid CLOSING your good tradelines... particularly if you are planning to buy a home.

 

I used to be a moderator here, but it's been quite some time since I posted there last:  http://www.creditinfocenter.com/community/

 

You might want to check it out to get ideas on how to work on your credit profile prior to buying a home.

 

However, having a good MIX of tradelines... such as a secured installment loan... can help your scores.  For example, this thread I wrote about 9 years ago:  http://www.creditinfocenter.com/community/topic/236056-make-money-rebuild-credit-and-build-your-savings-accounts/

[Backroads]

BTW, I wouldn't deplete your savings completely by paying off your debt.  Always, always, ALWAYS have an emergency fund.  Keep it at least $1,000, but perferably 3 months of gross income.  Ideally, you should have at least 12 months of gross income saved in a manner that you can access it easily if an emergency arises. 

 

 

We have about 4000$ in our emergency fund that is not part of this equation.

[Backroads]

 

That said. I think you need to get out of your grandparents' place. What is wrong with renting a house? It might slow down your downpayment savings to pay rent, but you wouldn't be financially reponsible if something went wrong and you'd have the space your young family needs. If you don't have experience living in a house as an adult, renting may be a good idea anyway, so you can see what kind of problems and expenses arise, even if you don't have to pay them yourself.

 

I agree with others - you can leave your student loan debt and don't use all your savings for debt repayment; keep some in reserve.

 

 

 

Renting is an option.  Renting is what we did before my husband went on active duty. We moved into my grandma's basement apartment after he returned and we weren't sure what we would be doing.  It was a temporary thing we're not sure we want to continue too much longer (though, yes, the rent is free). 

[Backroads]

What I have been told by financial people I trust (business & Econ professors)...

Pay off all your debt EXCEPT student loans.

The reason given is that student loans are

- classified as a different kind of debt, entirely... By both credit beauros & judiciary (aka 100k of student debt not even blinked at, while 5k of credit card debt can be a big deal).

- once consolidated & amortized over as long a period as possible... The interest rate = inflation rate = free money

________

 

 

 

 

Now, my husband argue over this.  We've been attacking the debt for awhile before realizing we could be debt-free by summer but have not agreed over which to pay off first. I voted car loan--being that the student loans are different.  My husband wants the student loans gone first, his reasoning being borrowed money is borrowed money.

 

If I'm right--what's the best way to explain that to him?

[Just_A_Guy]

I'm not a financial planner; but I'd be inclined to attack the car loan first.  If your income situation goes kaput and you can't make any of your loan payments--your student lenders won't come after your car (not for a very, very long time, anyways); whereas the car lender's repo guy could be on your doorstep tomorrow.

[mirkwood]

I would go for debt free.  Then you can start that savings again for the home purchase.  Debt free is such a blessing.  I have only my home left and in about 2 years that is done as well.  It gives me great peace to see that in our near future.