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Buy my own place or pay off my student loans?

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Old 07-23-2013, 08:19 PM   #1
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Okay, so I'm looking for some advice! I hope you all can help me out

So I (still) live with my parents. They're cool with this and want me to save so I can get my own place. Well after doing some research, getting things together, being a compulsive saver, etc. I can afford to buy a condo in my area!

I want to stay nearby anyway because my new job is less than 10 minutes from where I live right now.

BUT...

I have student loans (just from grad school). Not much really since I was able to do my Master's in a year and got a scholarship, but still a good amount. I have two options with my student loans if I stay at home:

1) Use half my savings and be able to pay off ALL my loans by the end of the year.

2) Don't touch my savings and pay off my loans in 10-12 months.

But that obviously means pushing off getting my condo. Getting the condo means not being able to pay the loans off as fast.

What is the better option? I know it's a buyer's market right now and if I can buy ASAP it's probably a good idea. Then again, I don't know if it's better to have my loans all done first.

I'm trying to step back and look at this rationally. Part of me is: "OMG OWN PLACE YAAAYYY" but I don't want to jump into anything without being prepared.
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Old 07-23-2013, 08:33 PM   #2
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That's a toughie!! Normally I would say get a place and get that equity. BUT if your parents aren't charging you rent I would say you're smarter to pay off loans, first!!

The other question is if you put off buying, will there likely be a place available where you want to be? That's an important piece, too!

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Old 07-23-2013, 08:41 PM   #3
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Quote:
Originally Posted by CherryPie99 View Post
That's a toughie!! Normally I would say get a place and get that equity. BUT if your parents aren't charging you rent I would say you're smarter to pay off loans, first!!

The other question is if you put off buying, will there likely be a place available where you want to be? That's an important piece, too!

Jen
Thanks for replying!

There's plenty of condos in my area so I'm not really worried about nothing being available when I'm able to buy (There's a HUGE complex a couple blocks away and several others nearby).

My parents do charge me rent, but a very, very small amount. I barely miss it.

I know, of course, the longer I wait the high the prices are, but if I don't have student loan payments hanging over my head then maybe the higher price wouldn't matter so much spread out over mortgage payments.

The thought of being DONE with my loans is exciting, but so is the thought of owning my own pad. :3

Ack! Part of me just wants to fly the coop and be independent...the other part says "BUT YOU CAN BE DEBT FREE BEFORE GETTING INTO DEBT AGAIN."
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Old 07-23-2013, 08:41 PM   #4
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Would you be buying outright or is it with loans? Have you figured out what the mortgage would cost per month if it is with loans? and could you easily afford it with your loan payments? Have you also considered association fees to the condo association as well as property taxes? Does it have a yard, and if so does the association take care of it or do you? same with issues like plumbing etc

Owning is better then renting but comes with things sometime people over look and end up not wanting to deal with or being ready for.

If you have taken all that into account and it is still and equal choice, I personally would go with the condo (if I found one I liked, not just one I could afford) The loans will keep and generally have really good interest rates as long as you keep up on them, who knows how long the market will be a buyers market.
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Old 07-23-2013, 08:52 PM   #5
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I'm in a similar boat. I am living at home and just finished my master's degree. I had no undergraduate loans but took out loans for my master's degree. I have one year left of supervised practice then...yippee!!!! I am a Suze Orman fanatic, she always says the best time to buy is when you are ready...not in a panic over interest rates rising. Alot of times people call in to her show wanting to buy a house because of interest rates, then once she looks into their finances, it is not such a good idea. Remember once you buy a condo you will also have to pay to furnish it and then pay taxes on it. Also if you have a mortgage you are required to hold homeowners insurance. Home ownership can get really expensive real quick. I personally would hold off.

I would open a Roth IRA savings account Tomorrow and Max it out for this year at $5,500. Getting a retirement account started early makes all the difference (because of compound interest). I have student loans and still make it a priority to max out my roth every year. Play around with retirement calculators online and you'll really realize how much holding off on starting one can cost you. I found this example

"John starts putting $100 a month in his Roth at age 25 until he’s 65. When he retires he’ll have $1,100,000. (assuming compound interest around 8%). Bob doesn’t start putting money in his Roth until he’s 35. He then puts the same $100 every month until he reaches 65. When he retires he’ll only have $300,000!!! Those 10 years of not investing cost him $700,000 OMG!!"


Then once you have your loans paid off and can afford to contribute to your roth, I would buy the condo. I whole heartedly believe that your 20s are the time to really suck it up and get your finances straight. It's much easier to make sacrifices now, then to find yourself at age 40 with $700 in your bank account and no retirement. Good decisions made now can pay off 10 fold down the road. Good Luck!!
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Old 07-23-2013, 09:28 PM   #6
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Consider doing both.

If you bought and rented the condo out would you be in a positive cash flow postion (or close to it) after taxes?
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Old 07-23-2013, 10:15 PM   #7
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If you don't mind living with your parents a bit longer, I would hold off on the condo and pay off your loans. Then, see how you feel being totally debt free. It sounds like you know how to save money, so saving up more money after paying your debt doesn't seem like it will be a problem for you.
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Old 07-23-2013, 10:20 PM   #8
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No question. Pay off the loans, although John's idea is novel thinking.

Whether or not you do that right away should probably depend on how much interest you're paying on the loan.

For example, if you're paying 8% on your student loan, but can only make 2% on your savings (if you're lucky!) then paying off your loan early would likely save you a good deal of money depending on the amount.

Getting your own place involves expenses one can't even begin to imagine. Have you ever heard the saying, "new house poor"? It's much easier to deal with unexpected things without debt. Even property insurance, which you will need, is based on your credit rating, which would likely be better with no debt.

As for housing interest rates, yes they are rising, but anything under 8% in the next 5 years would still be a steal compared to the way they used to be.

Last edited by Vex : 07-23-2013 at 10:23 PM.
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Old 07-23-2013, 11:20 PM   #9
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I love this kind of question - they are both good options!

Since you didn't give a full run-down of the numbers it's hard to give a definitive recommendation of what would be best net worth-wise.

As pnkrckpixikat and Vex said, have you fully assessed the cost of owning the condo, including the larger emergency fund you would want? As Scarlett pointed out, do you have your retirement savings started already?

Personally I would be very attracted by the mortgage interest rates now if I was totally sure I could afford the debt payments as well as the condo. However, paying off debt first is definitely the safer route.

This kind of decision is ultimately going to come down to your values and your risk aversion. How much would you value being debt-free vs. owning your own home? Do you want your whole net worth tied up in a condo? Would you be able to sleep at night with student loan payments as well as the mortgage, after your savings goes into furnishings and a larger emergency fund? What would happen if you lost your job?

Not questions you need to answer for us but ones to ask yourself! I recommend you run down all the numbers you're thinking with at least one homeowner a little ahead of where you are (preferably one who owns or owned a condo) so she can tell you if you're being unrealistic.
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Old 07-24-2013, 07:33 PM   #10
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Thanks everyone for chiming in! It's great to bounce ideas around and put ideas in my head I may not have considered or even thought of!

A bit more background on the situation: The condos I'm looking at are well below what I can afford! I should theoretically be able to afford to buy one making substantially less than what I am/will be making. If I make a little more than half what I'm going to be making at my new job I would be able to purchase them. So I shouldn't have a problem making my loan payments, and the interest rate on my loans is very low.

Quote:
Originally Posted by pnkrckpixikat View Post
Would you be buying outright or is it with loans? Have you figured out what the mortgage would cost per month if it is with loans? and could you easily afford it with your loan payments? Have you also considered association fees to the condo association as well as property taxes? Does it have a yard, and if so does the association take care of it or do you? same with issues like plumbing etc

Owning is better then renting but comes with things sometime people over look and end up not wanting to deal with or being ready for.

If you have taken all that into account and it is still and equal choice, I personally would go with the condo (if I found one I liked, not just one I could afford) The loans will keep and generally have really good interest rates as long as you keep up on them, who knows how long the market will be a buyers market.
I've looked at it all and I really should be able to live comfortably and be able to pay a little more than the minimum on my loans. The rates are low and I can write a lot of the interest off on my taxes.

The condos near here are nice and the plus side is that since I grew up around here I know the area well (and I really do like it here). I'll have the support of my family. I also know myself and I don't really need anything fancy, complicated, etc. I'm a pretty simple person and as long as I have a space to call my own then I'm fine.

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Originally Posted by Scarlett View Post
I'm in a similar boat. I am living at home and just finished my master's degree. I had no undergraduate loans but took out loans for my master's degree. I have one year left of supervised practice then...yippee!!!! I am a Suze Orman fanatic, she always says the best time to buy is when you are ready...not in a panic over interest rates rising. Alot of times people call in to her show wanting to buy a house because of interest rates, then once she looks into their finances, it is not such a good idea. Remember once you buy a condo you will also have to pay to furnish it and then pay taxes on it. Also if you have a mortgage you are required to hold homeowners insurance. Home ownership can get really expensive real quick. I personally would hold off.

I would open a Roth IRA savings account Tomorrow and Max it out for this year at $5,500. Getting a retirement account started early makes all the difference (because of compound interest). I have student loans and still make it a priority to max out my roth every year. Play around with retirement calculators online and you'll really realize how much holding off on starting one can cost you. I found this example

"John starts putting $100 a month in his Roth at age 25 until he’s 65. When he retires he’ll have $1,100,000. (assuming compound interest around 8%). Bob doesn’t start putting money in his Roth until he’s 35. He then puts the same $100 every month until he reaches 65. When he retires he’ll only have $300,000!!! Those 10 years of not investing cost him $700,000 OMG!!"


Then once you have your loans paid off and can afford to contribute to your roth, I would buy the condo. I whole heartedly believe that your 20s are the time to really suck it up and get your finances straight. It's much easier to make sacrifices now, then to find yourself at age 40 with $700 in your bank account and no retirement. Good decisions made now can pay off 10 fold down the road. Good Luck!!
I get a nice retirement package with my job, but I'll still be looking into everything! Thank you for putting this on my radar I save like crazy (it's just how I am with money) but I need to make my money work for me.

Quote:
Originally Posted by JohnP View Post
Consider doing both.

If you bought and rented the condo out would you be in a positive cash flow postion (or close to it) after taxes?
I did not even think of this!!! Something I will definitely consider...or maybe a roommate! I can buy the condo and get a roommate and charge them rent.

I know the rental market is pretty hot right now around here regardless, what with Sandy having displaced a lot of people.

Quote:
Originally Posted by BreathingSpace View Post
If you don't mind living with your parents a bit longer, I would hold off on the condo and pay off your loans. Then, see how you feel being totally debt free. It sounds like you know how to save money, so saving up more money after paying your debt doesn't seem like it will be a problem for you.
Being debt free sounds really nice. I talked to my parents about my first option (using half of my savings and paying off my loans by the end of the year) but my mother brought up the fact that the interest rate on my loans is pretty low. Paying the minimum over the life of my loan wouldn't really add all that much to it.

But still, I like the idea of not having that loan payment over my head...

Quote:
Originally Posted by Vex View Post
No question. Pay off the loans, although John's idea is novel thinking.

Whether or not you do that right away should probably depend on how much interest you're paying on the loan.

For example, if you're paying 8% on your student loan, but can only make 2% on your savings (if you're lucky!) then paying off your loan early would likely save you a good deal of money depending on the amount.

Getting your own place involves expenses one can't even begin to imagine. Have you ever heard the saying, "new house poor"? It's much easier to deal with unexpected things without debt. Even property insurance, which you will need, is based on your credit rating, which would likely be better with no debt.

As for housing interest rates, yes they are rising, but anything under 8% in the next 5 years would still be a steal compared to the way they used to be.
My interest rate is really really low—which is one of the reasons I've been wondering if it's a good idea to make a mad dash to pay it or if I should focus on saving money, getting my own place, etc.

I'm also choosing a place I should be able to afford on a much smaller salary, which I hope would give me a bit more room to play with.

Part of it is that I want to take advantage of the market, but the other part is that I just want to be independent. I'm 25, I think I need to get the **** out of my parents' house already

Quote:
Originally Posted by ERHR View Post
I love this kind of question - they are both good options!

Since you didn't give a full run-down of the numbers it's hard to give a definitive recommendation of what would be best net worth-wise.

As pnkrckpixikat and Vex said, have you fully assessed the cost of owning the condo, including the larger emergency fund you would want? As Scarlett pointed out, do you have your retirement savings started already?

Personally I would be very attracted by the mortgage interest rates now if I was totally sure I could afford the debt payments as well as the condo. However, paying off debt first is definitely the safer route.

This kind of decision is ultimately going to come down to your values and your risk aversion. How much would you value being debt-free vs. owning your own home? Do you want your whole net worth tied up in a condo? Would you be able to sleep at night with student loan payments as well as the mortgage, after your savings goes into furnishings and a larger emergency fund? What would happen if you lost your job?

Not questions you need to answer for us but ones to ask yourself! I recommend you run down all the numbers you're thinking with at least one homeowner a little ahead of where you are (preferably one who owns or owned a condo) so she can tell you if you're being unrealistic.
Thank you for putting this all in my head! I'm definitely not looking to jump into anything right away, but it's all something to really think about.

If I decide to buy I'm definitely going to save up a bit more before making the plunge. I have enough for a sizable down payment right now but I totally need emergency funds!
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Old 07-24-2013, 09:02 PM   #11
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I paid off my student loan first, which definitely helped my credit rating and enabled me to get a better loan rate for my two bedroom co-op apartment.

Unlike you, though, I bought into a co-op, not a condo, so there was a smaller pool of lenders to choose from, since co-op apartments pretty much exist only in the NY area and require a special kind of loan. I wanted to make my credit rating as attractive as possible.

The situation was slightly different in that I already had my own apartment, at an enviable rent that hardly changed for nine years, since my landlady wanted to keep a "nice girl" living upstairs. The savings on rent, and paying off my loan, really helped me sock away cash toward the down payment. I was able to pay 75% cash for my apartment (the co-op wanted at least 50% in cash).

Saving reminds me of losing weight ... both require patience in the face of incremental gains (or losses) and a focus on the long term over the short term, the same. For this reason, no matter whether it's a buyer's market or not, I do see you becoming a homeowner, and sooner, rather than later.
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Old 07-24-2013, 10:15 PM   #12
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I did not even think of this!!! Something I will definitely consider...or maybe a roommate! I can buy the condo and get a roommate and charge them rent.

I know the rental market is pretty hot right now around here regardless, what with Sandy having displaced a lot of people.
If you do this I HIGHLY recommend getting a management company to handle the rent stuff, doing this can prevent the renter knowing you are the owner and hassling you over things, they will assume you are just another renter. The management company also knows how to properly (and legally!) handle things like lease contracts, deposits, damage charges and repayment, etc.

I am not sure what they charge, maybe a percent of the rent every month? But I know in the end it can be worth it. My grandparents did this for a number of properties they had before they sold them and I know it saved them sooooo many headaches over the years.
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Old 07-25-2013, 06:22 PM   #13
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You also need to consider what your interest rate is on your student loans, what the interest rate is on the mortgage, and then a wide range of appreciation/depreciation situations in your area. Like what if condo prices go up in a year? Then maybe it would have been better to buy now. What if they go down? What if they go down and mortgage rates go up? I would sort of work this all out and estimate your net worth/long term debt based on different scenarios and see which one makes sense to your level of comfort/risk.
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Old 07-25-2013, 06:58 PM   #14
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I'd say pay off the loan first. Paying it off early will save you so much in interest. It will be one less thing to worry about and will help your credit rating. A condo will probably involve a monthly fee for a whole list of things. And home ownership is always more expensive than you think. It will be great if you don't have a monthly student loan payment hanging over your head too.
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Old 07-26-2013, 01:18 AM   #15
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I am Canadian, so not sure how helpful it would be...

I bought my first condo despite having to pay my student loans. My loan payments were something like $100/month. And the interest from them were tax-deductible. I could've paid off the loans a long time ago but didn't see the point. I bought my condo and three years later, my student loans were paid out. What are your student loan payments?

How much longer would it take you to pay off your loans should you purchase a condo?

I'll also say this. Once I moved out from my parents', I lost the weight SO FAST.
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