Savings, Student Loan, Rent v Buy?

**disneysteve** · 02-15-2018, 08:35 AM

Originally posted by BuckeyeDC View Post

My question is, for some reason I have this feeling I should buy a place instead of rent.

You should buy a house when it makes sense for you to own a house. Are you stable in your job? Do you plan to stay in the area long term, at least 5-10 years? If so, buying might be a good move.

Before buying, you need:
20% down payment
6-month emergency fund

I would not let the student loans stop you from buying if everything else is in place.

**Jluke** · 02-15-2018, 08:45 AM

What is the price range for the homes you want/like in your area?

Remember, that most of your money will go towards interest for the first many years of a 30-year mortgage.

based on the above and if home ownership is/isn't something you need right away:

with 1700 extra per month, consider upping your student loan payment to 1500. maybe even 2000.

Save the rest.

**disneysteve** · 02-15-2018, 09:51 AM

Originally posted by BuckeyeDC View Post

Have ~$1,700/month disposable income.

I would also point out that you don't have $1,700/mo. free. You didn't list your complete budget. I don't see food, clothing, transportation (you don't have a car payment but do you have a car?), entertainment, insurance costs, etc.

Before even considering a home purchase, make sure you know where all of your money is going and how much you actually have free.

**snafu** · 02-15-2018, 12:53 PM

Welcome to SA. You will see we all have different backgrounds and experience but we care about finances and are mindful with money. I am delighted to see you contribute 10% to your employer's 401K and presume you get full match offered. Do you know specific investment, allocation and management expense that is not always made obvious? How do your MFs mesh? Are they ROTH or taxable? Do your have an Emergency Fund for those nasty surprises life throws? [It's suggested that we start with $ 1 K, held in instantly available savings.

Homeownership isn't the best solution for everyone, it certainly zaps a lot of time, money, and effort. I suggest you look at a mortgage amortization table since it operates so differently from a traditional loan. I mention, it's critical to have 20 % downpayment to avoid the punishing PMI [mortgage insurance] that gives you no benefit; some extend the full length of the loan.

The most common 'rule of thumb' is to keep the purchase price no more than two - 2.5 times your annual salary. Keep an eye on home prices and interest rates. The most important factor is location, location, location. The decor, appliances and other features can be changed/updated. Do you have any DIY skills or interest?

**dczech09** · 02-15-2018, 02:37 PM

You're definitely in pretty solid financial shape!

There is absolutely nothing wrong with renting. Renting can help you develop contentment with what you have and can be part of a long-term financial plan. People like to say that renting is like "throwing your money away." However, so is paying mortgage interest and private mortgage insurance.

While choosing a house can be an emotional process and an emotional decision, the decision to buy should be logical. It should only be done when you are absolutely ready.

With that being said, if I were you I would be hesitant to buy when I have over $50,000 in student loans. Yes, that loan balance is manageable for you. However, wouldn't it feel better to knock that out before taking on an even larger loan? This is only may opinion, and in no way should that govern what you do, but it is something to think about.

Owning a home is a lot more involved than renting. Amenities are "a la carte." Property insurance and taxes are much more expensive. If something breaks, you do not have a landlord to call. The average homeowner spends about 2% of the home's value each year maintaining the home (not improving or appreciating its value, just maintaining it).

I am not here to discourage you. I am here to give you all of the information so that you can make an educated decision for yourself

If you do decide to buy, I highly recommend you can make a 20% down-payment (at least) and have 6-months worth of expenses set aside for emergencies. Avoid variable interest rates, keep the payment (principle, interest, tax, and insurance) within 25% of your income, and strongly consider a 15 year mortgage as opposed to the standard 30 year (especially if you are older than 40).

Avoid private mortgage insurance at all costs. If you make large enough of a down-payment, you will avoid it. But make sure you do. PMI is an insurance policy for the lender, not the borrower, yet the borrower gets stuck paying for it if they do not have enough equity.

Whew! That is a lot of stuff to cover. There is a lot to home ownership. If you have any questions, please feel free to ask.

**disneysteve** · 02-15-2018, 02:53 PM

Originally posted by dczech09 View Post

I would be hesitant to buy when I have over $50,000 in student loans.

I owed twice that much when we bought our house.

The one difference is that I knew my income would be going up. I was only making about 65K at the time but within 2 years I was close to double that.

**sblatner** · 02-15-2018, 03:09 PM

Sam, how old are you? (I don't think I see it in the post.)

**Smallsteps** · 02-16-2018, 04:51 AM

There are never ending questions in choosing to buy a home vs rent. You will get tons of advice here and in person I am sure. If you have a feeling about it building equity is it from your own values or just because it is an item you have read or discussed?
There are so many angles to make a big decision like buying a home I think besides the % down and trying to time the market. I have seen many BUY because they thought that is what they were supposed to do then find some items they had not even thought of when buying are now a bigger issue.

It sounds like you could certainly pay bigger payment to student loans and position yourself in an even stronger position while you decide.
Sometimes seeing what loan amount you might actually qualify for or actually attending open houses to see what is on the market in your range makes helps deciding to save more/ or plan more of what you want and don't want in a home.

**Gailete** · 02-16-2018, 08:58 AM

For most of my life I have lived in my own home in conjunction with a bank holding the mortgage. At this point in my life, I wish I was renting and letting a landlord deal with maintenance and emergencies, but then I'm in my 60's and neither hubby or I have the oomph for the necessary maintenance so we have to pay for it all; grass cutting, snow shoveling, house cleaning, and the list seems to get bigger every year. Most likely not things that you have to worry about at this point in your life, but there is no cut and dry rule that says you have to own a home at any point in your life.

If you do buy, I too say get that 20% down payment together plus some extra because it always costs more than you expect to move to a new place between installing utilities and since those seem to be taken care of via your rent, getting utilities can have you paying deposits, you may have to buy towel racks, new furniture, lawn equipment (look at yard sales), etc. the list just get longer and longer and longer. Even right down to having to pay your fire insurance in advance of the closing. Those sorts of things.

Savings, Student Loan, Rent v Buy?