Save for a house now or pay down student debt

[bikerdood]

My wife and I are wondering whether we should wait until she pays off her student loans to save for a downpayment for a home or if we should save up for a downpayment now.  We keep separate finances, our respective assets/debts precede our relationship.  I've been mustachian pre-us and she joined me on the bandwagon :).  Disclaimer - I'm providing less info than I would for a case study because this is a more specific question than a general how-do-we-cut-our-spending case study.  Thanks in advance for reading :)


Our Financial Situation:

Mine:
Assets: ~75k assets, most of which is in retirement accounts
Debt: 0
Income (pre-tax): ~100k

Hers:
Assets: ~5k assets, also retirement
Debt: ~80k at 6%
Income (pre-tax): ~70k

Joint expenses:
~1500 per month (everything - rent, food, etc)

Context
We know where we want to be living for at least the next 10 years or so.  We have 1 child.  Being close to family is extremely important to us and my mom cares for baby while we're at work.  So being within walking/biking distance of mom's is imperative.

The Area
I've kept a close-ish look on the market for the past year.  This is one of those high cost of living areas in the DC metro area.  Median house prices are ~430k.  There is the occasional steal for ~300k but they disappear quickly and I'm assuming there's fierce competition between investors and cash-buyers.  We not being either at the moment would likely not be competitive enough to snatch one up.

The Conundrum
Risk-management-wise, I know the naive solution of wait-until-student-loans-are-0 and then save for a mortgage is safe and relatively surefire.  Wife is on-target to pay back the 80k w/in 3 years which isn't that far away at all.  That being said, from what I understand for our area, interest rates on mortgages are going to start creeping up, inventory is getting lower, etc.  In short, because we plan on being in this area for at least the next 10 years if not 'forever,' would it be wise to just bite the bullet and go in on a house while interest rates are still low and begin to build equity earlier in our mustachian trajectory?  Or, is 3 years to debt freedom negligible time that the market won't change so dramatically (or at least not as dramatically as our financial situation) that we should stay the course and pay down the student debt first?

Notes
To re-iterate, yes this is totally a high cost of living area.  Terribly terribly anti-mustachian.  But my family is extremely close and remaining geographically close is a priority.  Neighboring lower-cost areas have (at least great-schools-ratings wise and from my own experience growing up around here) markedly worse public school systems and markedly higher crime rates.  So I'm not sure there's a 'Longmont'esque alternative for us.  We've also considered looking at condos which with HOAs would come out to buying a house for ~250-350k.  But condos sound like an almost-always-terrible idea from what I've read around these forums and elsewhere.

Again, thanks for reading!

[thd7t]

You're earning about $170k/year and living on $18k/year.  After funding retirement vehicles, you're looking at a huge surplus.  I'd say stick with killing the loans, but your income and spending are such that you can do a split.  I'd put more pressure on about the loans, but you're living on around 11% of your income.  Extremely badass!

[Tabaxus]

I... don't understand how your living costs are so low in a high COL area.  Please share.  My monthly rent is $1350 (which is $100-200 under market) and I'm in Chicago (so not nearly as high COL as your DC-area existence).

Personally, I'd try to grab a house before mortgage rates go up, in your circumstances.  That's emphatically what I did NOT do--I paid my loans off before I started to save--and I really regret it now, especially because now I'm not sure that I'll be in my current location long enough to make buying make sense, so I'm stuck in rental purgatory.

That said, with your apparent expenses, isn't down payment + loans gone in one year pretty clear on the radar? I don't understand why you're forecasting three years.

[bikerdood]

Mea culpa mea culpa mea maxima culpa.

Our monthly bills are NOT 1500.  The figure I intended was ~2500.

The breakdown is ~1400$ for an apt, 300$ for food, 200$ for cell phones (spendy), 200$ for eating-out/going-out/sundries, 30$ for internet, electric/water bills, car insurance.  Wife has a high 200$/mo public transit cost which should go down imminently as she starts riding her bike.

The biggest way we keep our costs down is that we pretty much never drive ever.  Also my mom takes care of our baby during the work day so we don't have a childcare bill which would be astronomical.  Baby actually requires very little $ at this point.

Having a baby is actually a great way to keep costs down.  We hardly have time to go out, so we don't :).  Most of our free time is spent taking long walks, bike rides, hanging with family, seeing friends.  Usually all occurring within walking distance.

[Tabaxus]

Mea culpa mea culpa mea maxima culpa.

Our monthly bills are NOT 1500.  The figure I intended was ~2500.

The breakdown is ~1400$ for an apt, 300$ for food, 200$ for cell phones (spendy), 200$ for eating-out/going-out/sundries, 30$ for internet, electric/water bills, car insurance.  Wife has a high 200$/mo public transit cost which should go down imminently as she starts riding her bike.

The biggest way we keep our costs down is that we pretty much never drive ever.  Also my mom takes care of our baby during the work day so we don't have a childcare bill which would be astronomical.  Baby actually requires very little $ at this point.

Having a baby is actually a great way to keep costs down.  We hardly have time to go out, so we don't :).  Most of our free time is spent taking long walks, bike rides, hanging with family, seeing friends.  Usually all occurring within walking distance.

This is still super impressive:/  I don't drive either (don't have a car), but our food expenses are much higher than yours (and we don't even have a kid).

Anyway, same observation still holds.  Seems like down payment + debt repayment in ~1.5 years is easy on your current spending?

[Mr Dorothy Dollar]

Since you keep your money separate (which I personally think is bad within a marriage), you have setup a situation where if on a team of one, the best move for you is to get a house and the best move for her is to pay down the student debt. You made a kid with her it might be time to join funds and be the same team.

[SantaFeSteve]

You're earning about $170k/year and living on $18k/year.  After funding retirement vehicles, you're looking at a huge surplus.  I'd say stick with killing the loans, but your income and spending are such that you can do a split.  I'd put more pressure on about the loans, but you're living on around 11% of your income.  Extremely badass!

+1 on that comment. 

I think given your lifestyle and very strong understanding of what you want for the foreseeable future, a split approach is reasonable. Making a savings plan for a home purchase in a few years should allow you to continue to making additional payments on the debt. 

Mustachianism doesn't have to be all of nothing (IMO) and so finding the balance is the important thing. 

I would recommend taking the time to work an idea of what your budget will look like if/when you buy the home.  How much will the mortgage payments be, taxes, insurance, upkeep, improvements, utilities, etc (there are a lot of etc to think about especially if you are a first time home owner).  Then think about what one-time purchases you might consider if you bought a home, things like furniture, curtains, yard maintenance equipment, basic tools, etc.  You probably won't need to buy these all at once, but you should have a plan for what you might need/want in the new situation.  Take those numbers and compare to your current budget and savings goals. 

Buying a home is not a one-time expense.  Houses are expensive to own and operate, especially if you are not yet a serious (retired) handyman like MMM.   Once you have a realistic future budget, set your priorities and make it happen.  Best of luck.

[Numbers Man]

Six percent student loans suck but don't let the obsession of erasing that debt cloud your judgement on buying a house. If you need a house then buy the house since you seem to have a lot of free cashflow. You'll still be paying down the debt and will get to enjoy the house.

[mrfilthyrich]

OR why not both?  What if your wife refinanced her student loans, which in turn will make it much more manageable and much less of a priority? My wife and I were basically in your exact boat.  I had Grad loans at 6.125% and was putting all of my extra money there.  In the meantime I felt like we were missing a perfect opportunity to save up for a down payment. 

Now that I have refinanced from 6.125% to 3.3%, the student loans are now getting the minimum payment until we have enough for a down payment.  At that point I will re-address how our money is allocated.  But for right now, I am setting everything that I used to be paying toward the student loan and instead applying it to the mortgage (minus my minimum payment for student loan).

I think that is by far the best option for you guys to both reduce the student loan while moving into a home sooner rather than later.  You have probably read about SoFi on the forums, but I highly recommend them for student loan refinancing.  The process for me took about 2.5 weeks from starting the application to having my old loan paid off.  The only annoying part was that they weren't always accurate with timelines (you will be contacted in 24-48 hours...instead I would call them 72 hours later and they would tell me to just wait longer).  Just know that once you are done refinancing you really don't have to deal with them again and you reap the benefits.  If you decide to go that route, please consider using my referral link as both you and I will get a $100 bonus. https://www.sofi.com/refer/5/9478

Best of luck in whatever you decide!

[thd7t]

OR why not both?  What if your wife refinanced her student loans, which in turn will make it much more manageable and much less of a priority? My wife and I were basically in your exact boat.  I had Grad loans at 6.125% and was putting all of my extra money there.  In the meantime I felt like we were missing a perfect opportunity to save up for a down payment. 

Now that I have refinanced from 6.125% to 3.3%, the student loans are now getting the minimum payment until we have enough for a down payment.  At that point I will re-address how our money is allocated.  But for right now, I am setting everything that I used to be paying toward the student loan and instead applying it to the mortgage (minus my minimum payment for student loan).

I think that is by far the best option for you guys to both reduce the student loan while moving into a home sooner rather than later.  You have probably read about SoFi on the forums, but I highly recommend them for student loan refinancing.  The process for me took about 2.5 weeks from starting the application to having my old loan paid off.  The only annoying part was that they weren't always accurate with timelines (you will be contacted in 24-48 hours...instead I would call them 72 hours later and they would tell me to just wait longer).  Just know that once you are done refinancing you really don't have to deal with them again and you reap the benefits.  If you decide to go that route, please consider using my referral link as both you and I will get a $100 bonus. https://www.sofi.com/refer/5/9478

Best of luck in whatever you decide!

Refinancing is a great idea in your situation.  It costs nothing to explore it and the analysis is easy.