I will be graduating from college this May. I have about $47,000 in student loan debt and about $15,000 in investment accounts (which are not retirement accounts). With the new $15,000 first time home buyer credit, I am wondering about the intelligence of sinking my investments into a downpayment on a house (I have to move anyway, my job is in a different state). Since I will be making a good salary (more than $50k a year), I have no doubt that I could afford mortgage payments, especially since rent in the area is around $800 a month.
What are your thoughts?
My priority would be on paying off those student loans. Frankly, I would sell your investments, withhold enough for a decent emergency fund and put the rest against your student loans. I would then rent until the loans are gone, then start saving up for a down payment.
Remember, just because you can pay the monthly payments, doesn’t mean you can afford a home. Be debt free except for your mortgage and your life will be far less stressful.
I agree with Gibble. I wouldn’t take unnecessary risk it in this economic downturn. Although the new $15,000 credit for home buyers is a very attractive deal, I think it’s better to use your money to build up an emergency fund and keep that in an online savings account. I know they are only averaging 2.5% right now, but I still believe they are the best place to keep your emergency fund due to how easy it is to get to your money and the relatively decent interest rate.
I would use the rest of the money to pay off your student loan. However, if the interest rate on your student loan is really low, you may want to consider saving the rest for the eventual down payment for your first home. In any case, it’s a good idea to save up so that you can afford to pay a 20% down payment for your home so that you don’t have to pay private mortgage insurance.
Whatever you decided. Good luck.
I wouldn’t buy right away in any case – if you’re only just graduating from college, you don’t even know if you’re going to like this job and it would be most annoying to be tied down by a house, particularly if it’s in an area where prices haven’t reached rock bottom.
If you really want to buy a house, I’m guessing that based on rent levels you’re looking at places that are in the $200k plus price bracket. Which means that you’ll want a substantial deposit in order to get the best mortgage rates. If your student loan interest rates are relatively low, then save up some more money for a deposit if a house is what you really want. If you’re thinking about buying a house just because that’s what people do, then don’t; it’s no more or less of an investing certainty than the stock markets but it is significantly less liquid.
Things have changed a bit since you submitted your question – the proposed $15,000 first time home buyer’s credit is now an $8,000 first time home buyer’s credit. That may make a difference in your decision to buy now.
Beyond that, I would recommend waiting a year or so to buy. Whenever you move to a new location, it is always a good idea to rent for awhile to get a good idea of which neighborhood you want to live in, locate the good school districts, etc. Even if you don’t have children now, good school districts will help the resell value of your home.
Waiting will also give you a better idea of your financial situation and career prospects. You may find this is the perfect career and location for you, or your company may decide to transfer you. In short, you probably just don’t know yet. A year should give you a good idea of where you are headed professionally. In the mean time, I would recommend renting, paying down your student loans, getting settled in your career, and having fun. After all, you will have just graduated college!
Readers: What do you think?
Photo by molajen.
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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