Author Topic: 100k Debt with a desire to move out and get married  (Read 10208 times)

Phenomenon42

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100k Debt with a desire to move out and get married
« on: November 15, 2012, 03:47:22 PM »
Here is the sad story, as sad as a shaved mustache. Me and my girlfriend want to move out within a year from now (we are currently 25, and will be 26 during the house hunting.) We want to get married within 1-2 years as well.

We both make 32k per year

We both live at home rent free.

The majority of our expenses go to food and gas, which is something that we try to cut back on, I am a very aggressive saver and try to stretch money as best I can (something I learned while on food stamps while serving in the Americorps) And my girlfriend is a very aggressive with her debt and keeps good records on what she spends money on. I recently signed up for mint.com in order to get an even better picture of my budgeting.

My Debt: I have a 9k car loan and am making payments on it while saving up.

Her Debt: She owes 6k on her new (used) car and is undergoing a dental surgery coming up which will cost 8k (her dental insurance is awful) for a total of 14k. She hopes to have this paid off by April or so, and then focus all her energy on paying off her 90k in student loans. Note: this 90k isn't actually 90k but thats what it will be if she pays off the minimums, which she has been doing, but plans to pay more once these other things are out of the way.

The best fiscal move seems to be to live at home until we have 0 debt, then buy a home, get married, save, work, and retire. However, that will likely take at least 5 years, and putting off an engagement, a wedding, and living together for that long is not an idea we are crazy about.

Our plan was to look for a house within a year, my debt will be gone, hers should be down to just her student loans, I think the principal on it is 70k or so.

We are looking for a house in the 50k-110k range, we have been looking at a lot of foreclosures and fixer uppers online in order to get a feel for it.

My overall question is, what should we do? Move out in a year after all debt is paid off except for student loans? Or wait until all debt is paid off or at least a substantial part of her student loans? I am also trying to balance the savings part with jumping at a great house deal, cause not only do they stay on the market for terribly long, as the housing market recovers, they will be harder to find. And I dont want to miss that window.

Here are our numbers combined.

Debt = 113k
Money earned = 64k (50/50 split - I have been saving most of mine, while she pays most of hers towards debt)
Monthly Expenses including phone, gas, food, entertainment, etc = est. 700

Jack

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Re: 100k Debt with a desire to move out and get married
« Reply #1 on: November 15, 2012, 04:29:30 PM »
Your situation isn't that different than mine, except that I already got married and bought the house -- albeit, before I found this website (~$100k combined student loan debt, ~$100k house, ~$40k income each). It may not be financially-independent-in-5-years-Mustachian, but IMO moving out isn't that bad an idea, especially if doing so increases your quality of life and is important to you.

By the way, buying the house might be harder than you think, especially -- and counter-intuitively -- at the low end of your budget. At $50K you'll be competing against cash buyers and you'll have a hard time finding a lender willing to write you such a small mortgage (because the maximum fees without running afoul of predatory lending laws are too small to be profitable).

Also, although $64k combined income might be just too high to qualify, you should check with your city/county/state to see if they offer any first-time-homebuyer down payment assistance.

Phenomenon42

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Re: 100k Debt with a desire to move out and get married
« Reply #2 on: November 15, 2012, 04:37:39 PM »
Something I left out, I would probly be applying for the loan on my own. My understanding is that they look at all of your assets and everything combined to get the whole picture. Although we both have really good credit, Combined its something like 64k annual earnings, 110k in debt. But alone, its 32k annual earnings and 9k in debt.

totoro

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Re: 100k Debt with a desire to move out and get married
« Reply #3 on: November 15, 2012, 04:46:06 PM »
What about a compromise.  Buy a house and rent it out to cover the mortgage with the idea that you will move in once the debt is gone.  Stay at home for two-three years - what is your savings rate? - and get rid of the $9000 and both of you pay off her student loan as quick as possible. 

Also, do you both really need a car.  Could you go down to one?  If you buy a home next to work could you both get rid of your cars?  If so, might make sense to buy and move in.  Do a budget and run the numbers.

Jack

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Re: 100k Debt with a desire to move out and get married
« Reply #4 on: November 15, 2012, 04:47:59 PM »
Something I left out, I would probly be applying for the loan on my own. My understanding is that they look at all of your assets and everything combined to get the whole picture. Although we both have really good credit, Combined its something like 64k annual earnings, 110k in debt. But alone, its 32k annual earnings and 9k in debt.

Good; that would probably help you qualify for down payment assistance, especially if you were not yet married or living with your girlfriend. (And it would stop you from qualifying for an un-Mustachian too-large mortgage!)

By the way, that's also similar to my situation: our house is in my wife's name, and three years ago when we bought, she was making ~$32k and I had just graduated and was not yet working.

Another Reader

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Re: 100k Debt with a desire to move out and get married
« Reply #5 on: November 15, 2012, 05:13:42 PM »
In your shoes, I would work on paying off the car loan ASAP.  That will put you in a better position for saving and investing.  One thing I don't see in your calculations, is the increase in your cost of living after you move out of your parents' houses.  That's going to cut down on your savings and debt repayment progress.  $700 in expenses now, not including the two car payments and the student loans seems high.  Will you be able to reduce this significantly if you move in together?

What about moving out into a small, inexpensive rental near the jobs once the cars are paid off?  That way, you could throw most of her income at her student loan debt, while still living together.

Are you expecting any salary increases and/or promotions that would increase your income?  Could you take on side work temporarily to pay off the debt faster?

Looking at some possible budgets together might help you see your situation more clearly.

KingCoin

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Re: 100k Debt with a desire to move out and get married
« Reply #6 on: November 15, 2012, 05:34:16 PM »
What about moving out into a small, inexpensive rental near the jobs once the cars are paid off?

I agree with this sentiment. If you're not married, early in your careers, and likely to see a rapidly improving/evolving financial situation, renting a cheap starter apartment is by far your best move. Your life situation is likely to change fast over the next 5-10 years and you hear story after story on these boards about people saddled with homes that are in the wrong location, the wrong size, or have become a financial anchor for one reason or another (they're fixer-upper money pits, they're underwater and difficult to sell, their spouse/roommate/girlfriend splits and they're stuck with all the expenses etc.). I understand the visceral appeal of owning your own place, but it's not worth the huge amount of flexibility you get from renting for a few years. What makes you think the market is poised to substantially beat inflation? Even if the housing market rallies 10%-20%, that's not exactly going to leave you priced out of the housing market in your current price range. If anything, it would be nice to see a 10% rally before buying as a confirmation that the market has bottomed.

Is either of you parents' house large enough that you could setup something like an apartment within the house for the two of you? You could offer to contribute a nominal rent and a share of the utilities. Probably not exactly the newlywed bliss you have imagined, but it would certainly make a ton of sense from a financial perspective.
« Last Edit: November 15, 2012, 05:36:02 PM by KingCoin »

Phenomenon42

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Re: 100k Debt with a desire to move out and get married
« Reply #7 on: November 15, 2012, 06:04:21 PM »
First off, I am very grateful for all of the responses and there are a lot of good ideas here. So thanks!

Unfortunately, neither of our parents house are able to set up an apartment styled area for us to live in. The reason we aren't looking at other apartments is because we dont want to pay rent and not build equity, it just feels like a waste. Although the point you made about it being a time of change in our lives is a good one, and I will think on it.

In terms of going down to one car, its no dice at this point. I own a business with my Dad, and my GF works about 40 minutes from that location. We were looking at moving closer to my business, and then going down to one car would definitely be an option. But until we are actually moved in, it cant really work.

I agree that the $700 per month is high. Currently, my GF is working 2 jobs, her main job, and she is working nights at a seasonal business me and my dad set up for Nov and Dec. I am only working in a mall, about 40 minutes away from home, 6 days a week (the gas adds up of course.) And my GF is commuting a total of 70 minutes per day to my 80 per day. The other problem is that we were spending more money on food because we are both working 70-80 hour weeks at the moment. Although I am happy to say I am back on the packing lunch bandwagon. I just need to find more time to get to the supermarket so I have things to pack.

We do want to get into the property renting business as well, it seems like a very nice position to be in. As far as how that roles into all of this I am not sure.

I could pay off my car loan entirely with money I have saved up, which would save me about 500 dollars in interest. I have not done this yet because as I mentioned earlier, I didn't want to miss out on a great opportunity to get a good house cheap. Although, I guess there aren't strong signs of the housing market bouncing back in a big way. So perhaps it would be wise to throw all my savings at my car loan, and start saving up again for the house from a few hundred dollars.

Thoughts on that?

and again, thanks so much for the help, this is a great resource.

Jack

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Re: 100k Debt with a desire to move out and get married
« Reply #8 on: November 15, 2012, 06:13:29 PM »
What about moving out into a small, inexpensive rental near the jobs once the cars are paid off?

I agree with this sentiment. If you're not married, early in your careers, and likely to see a rapidly improving/evolving financial situation, renting a cheap starter apartment is by far your best move. Your life situation is likely to change fast over the next 5-10 years and you hear story after story on these boards about people saddled with homes that are in the wrong location, the wrong size, or have become a financial anchor for one reason or another (they're fixer-upper money pits, they're underwater and difficult to sell, their spouse/roommate/girlfriend splits and they're stuck with all the expenses etc.). I understand the visceral appeal of owning your own place, but it's not worth the huge amount of flexibility you get from renting for a few years. What makes you think the market is poised to substantially beat inflation? Even if the housing market rallies 10%-20%, that's not exactly going to leave you priced out of the housing market in your current price range. If anything, it would be nice to see a 10% rally before buying as a confirmation that the market has bottomed.

While you're surely right about flexibility and whatnot, it's not easy to find an apartment cheaper than the mortgage of a $50k-$100k house. Mine is only $640, whereas even a cheap-but-decent apartment in my area is $800+ (and something equivalent in size to my house would be $1200+). Speaking of which, my house would easily "pencil out" as a rental, which neatly mitigates the flexibility issue.

totoro

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Re: 100k Debt with a desire to move out and get married
« Reply #9 on: November 15, 2012, 06:18:06 PM »
I would pay off the car loan first and save for the house.  So much depends on your local housing market though.  You should become very familiar with the market and decide how price/rents/appreciation might go and do a full budget.

Paul der Krake

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Re: 100k Debt with a desire to move out and get married
« Reply #10 on: November 15, 2012, 06:21:04 PM »
@OP: it'd be helpful if you told us where you live, or at least ballpark the cost of rentals. Here in the south, 32K is a comfortable salary for a lot of people.

Do you expect to keep the same jobs for long? Are there any skills you could use to provide another side-income?

Why don't you rent the smallest and cheapest place you can find until you have made a serious dent in your debt? Short of living in a high-crime area and/or with rats, I'd try and find a side cabin/shed that's separate from someone's property and whose owner is willing to rent for cheap. As in, if the lights don't go out during a storm, it's already too nice. It will either bring you closer to your future wife, or drive you apart since it sounds like you have never lived together. Either way, you'll be glad you did it *before* buying a house together.

KingCoin

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Re: 100k Debt with a desire to move out and get married
« Reply #11 on: November 15, 2012, 06:30:58 PM »
While you're surely right about flexibility and whatnot, it's not easy to find an apartment cheaper than the mortgage of a $50k-$100k house. Mine is only $640, whereas even a cheap-but-decent apartment in my area is $800+ (and something equivalent in size to my house would be $1200+). Speaking of which, my house would easily "pencil out" as a rental, which neatly mitigates the flexibility issue.

Yeah, it's worth running the numbers. Though, one should keep in mind that the amount of equity you'll build in the first 5 years of a 30 year mortgage is small, so I think equity-building should be a secondary concern at best. Additionally, remember that the cost of an apartment includes maintenance and often heat, water, trash etc. Most real estate investors like the rent to be twice that of the mortgage to cover these costs. It could be totally demoralizing if you get hit with a $6,000 bill to replace the roof or a $4,000 bill to replace the boiler when you're struggling to get a financial footing.

Phenomenon42

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Re: 100k Debt with a desire to move out and get married
« Reply #12 on: November 15, 2012, 06:37:34 PM »
We live in PA, she lives and works in Coopersburg, very near to Allentown. I live in Doylestown with my dad and work in Perkasie, about 25 minutes away from each other. Doylestown is upper-middle class. Perkasie is probly closer to middle -middle class.

Perkasie is where we were looking to move because that is where I work 80 hours a week from March to Oct.

In terms of other skills, nothing is coming to mind. But I will definitely look for somethings. I am a novice woodworker, and semi handy.

Question about selling my car, which is hypothetical at this point, although it would be nice. Would it be better to pay off the car and then sell it and put the cash to other debts/house downpayment. Or would it be better to sell the car, while still owing 50% of it/ is this even possible?

NWstubble

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Re: 100k Debt with a desire to move out and get married
« Reply #13 on: November 16, 2012, 01:07:32 AM »
Yeah, it's worth running the numbers. Though, one should keep in mind that the amount of equity you'll build in the first 5 years of a 30 year mortgage is small, so I think equity-building should be a secondary concern at best. Additionally, remember that the cost of an apartment includes maintenance and often heat, water, trash etc. Most real estate investors like the rent to be twice that of the mortgage to cover these costs. It could be totally demoralizing if you get hit with a $6,000 bill to replace the roof or a $4,000 bill to replace the boiler when you're struggling to get a financial footing.

Best advice so far. I would prioritize paying off the auto and dental debt, while really assessing the true cost of buying and owning a home. Do a rent vs. own comparison and as others have suggested look into cheap apartments/rentals. Try not to get caught up in the "missing out on a good deal" mantra. For years people told my wife and I to buy a house because "now was the best time", but we chose to determine when the best time for us was based on our financial situation and are certainly in a better position because of it.

And my GF is commuting a total of 70 minutes per day to my 80 per day.

Holy shit man!
Read this: http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/
Then search the MMM site for other commuting posts if you are not convinced that you need to find a way to optimize this ASAP.


Phenomenon42

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Re: 100k Debt with a desire to move out and get married
« Reply #14 on: November 16, 2012, 09:27:49 AM »
And my GF is commuting a total of 70 minutes per day to my 80 per day.

Holy shit man!
Read this: http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/
Then search the MMM site for other commuting posts if you are not convinced that you need to find a way to optimize this ASAP.
[/quote]

Yeah, I've read that one. Right now, we are both working seasonal jobs to earn extra money (which I know is less that it seems due to the commuting time.) But these jobs end on 12/31. At which point I will be unemployed for 2-3 months, and her commute will go back to about 20 minutes round trip per day.

Forcus

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Re: 100k Debt with a desire to move out and get married
« Reply #15 on: November 16, 2012, 06:27:15 PM »
Make sure you do the math on the building equity vs. renting. I bought a house that has cost me 3x what the rental cost was for my apartment, and lost value. I thought it would build equity but it was not the case. I am just now getting positive equity - about 5.5 years after purchase. If I had my choice, I would have stayed on the apartment MUCH longer and banked MUCH more money. Just a thought.

mm1970

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Re: 100k Debt with a desire to move out and get married
« Reply #16 on: November 16, 2012, 09:49:09 PM »
Wow, that's a lot of commuting, though I kind of get it.  My family lives in western PA, and 60-90 minutes (rural driving mostly) is typical.  And then you get used to driving and you drive two hours to go shopping on your days off.

But I digress...$70k seems like an awful lot in educational loans for a $32k income.  Is there opportunity for growth income for either of you?

I'd probably stay and home and keep saving up for quite awhile. Maybe not until age 30 though.

TomTX

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Re: 100k Debt with a desire to move out and get married
« Reply #17 on: November 17, 2012, 12:25:06 PM »
When someone buys a house, 8-12% of the purchase price gets grabbed by realtors, inspectors, title insurance, attorney, mortgage points, filing fees, et cetera. Plus the seller likely spent some money on fixing the place up first (new paint, new carpet, some landscaping.)

ie - if you show up at closing and put a pile of cash on the table - say $100,000 to push across the table to the seller. When you do put that cash down a dozen hands dip in as it goes across the table and each takes a fistful (or two if it is the realtor.) The seller ends up with $90,000.

Oh sure, notionally some fees are charged to the buyer, most to the seller - but that's just paper. It really does boil down to: You show up with money, a dozen people grab some, the seller gets what's left.

When you are buying a house "to build equity" you have to figure you are around 10% "in the hole" on the day you buy the house.

NestEggChick (formerly PFgal)

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Re: 100k Debt with a desire to move out and get married
« Reply #18 on: November 17, 2012, 07:26:34 PM »
This can help you run the numbers:
http://jlcollinsnh.wordpress.com/2012/02/23/rent-v-owning-your-home-opportunity-cost-and-running-some-numbers/

Like others have said, if you buy a house, you need to have enough money not only for the downpayment, but also for closing costs and such, and for any repairs that might be needed after you move in.

I think that it makes sense to not delay your life with your future wife for a long time, but it does make sense to pay down those loans asap.  If it were me, I would rent a cheap apartment until the loans are paid off.  This would have the advantage that, by then, your job situation would likely be more stable, so you would have a better idea of where to buy.

iamlindoro

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Re: 100k Debt with a desire to move out and get married
« Reply #19 on: November 17, 2012, 07:45:21 PM »
Yeah, I've read that one. Right now, we are both working seasonal jobs to earn extra money (which I know is less that it seems due to the commuting time.) But these jobs end on 12/31. At which point I will be unemployed for 2-3 months, and her commute will go back to about 20 minutes round trip per day.

Wait wait wait wait wait... what?  Why?  Why would you be unemployed for 2-3 months?  Shouldn't you be using this time to find something that you can pick up in January to keep your income going?

You should also be working hard as heck to increase your income-- 32 is very low for just about anywhere.  You should be able to improve that with even a journeyman level full time job.  If you feel like you have no marketable skills, have you looked into getting yourself apprenticed in a field like construction, electrical, plumbing, or otherwise?  These skills are portable and once you have them you can market your services in addition to working for your full time employer.

Finally, and I know that it's me being the a-hole saying this, but it goes without saying that any big wedding celebrations should wait until you are on rock solid financial footing.  IMO at your current income levels and indebtedness, the only wedding that is permissible is a civil ceremony.

Do.  Not.  Buy.  A.  House.  Live rent free for as long as possible.  Stay in a room at one of your separate parents-- right now it's not about comfort or even about romance-- it's about paying down your debt emergency.  Pay off the debt as completely as possible and start some sensible investments.  Get your income up and your employment secured (both of you).  *Then* start talking marriage.
« Last Edit: November 17, 2012, 07:50:18 PM by iamlindoro »

frompa

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Re: 100k Debt with a desire to move out and get married
« Reply #20 on: November 19, 2012, 03:30:06 PM »
I agree with the last poster.  Don't buy a house.  I know the geographic area you live in, it's not far from mine, and I think you have SERIOUSLY underestimated the amount you'd have to pay for a house.  Bucks Co or Lehigh Co both have relatively high taxes, on top of whatever you pay for a house.  I'd say, don't go anywhere near buying until you have at least 30% of the value of the house saved, cash in hand.  However long that takes, is how long it takes.  If you really can't stay in your rent free situations, go rent somewhere.  And focus on stashing away cash, to buy a house if you must, while at the same time getting rid of that debt load.  I think you both ought to be at significantly higher income, too, before you can comfortably add the financial burdens of home ownership.  Renting gives a LOT of flexibility; and I know plenty of lifelong renters who have saved in cash what others have in equity in their homes, as they take advantage of years of freedom from the other financial burdens of homeownership, like maintenance and upgrades. Good luck!

Phenomenon42

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Re: 100k Debt with a desire to move out and get married
« Reply #21 on: November 19, 2012, 03:36:58 PM »
I'll be kind of unemployed for 2-3 months because I am a part owner and manager of a seasonal business that runs from early March to mid October. I am currently doing another business venture for Nov and Dec. Once I am done with that, I will be looking for something to do in January and February.

As far as a big grand wedding celebration, that was never something we were going to do. At most, we would rent out a hall of some kind for the reception. Nothing too major, I know this can still be expensive, but we would cut costs in that way by making/bringing our own food for everyone, buffet style.

The claim that 32k is low for almost everywhere I agree with, however the claim that you can start higher than that at entry level is inaccurate at best. When I finished my year with Americorps, I was granted "non-competitive status" which helped me to get any job that I was minimally qualified for. That paired with some experience in management and a college degree amounted to me getting turned down for entry level jobs, some of which were below 30k. So while I agree, that 32k is not great, it is not super easy to do better than that right off the bat.

In terms of what houses we were looking for, as I mentioned earlier, 50k-100k was our range. We have been looking almost exclusively at foreclosures.

At any rate. It seems like the ideal thing to do is to stay at home for as long as we can, and continue to be as aggressive as we can to pay down what we owe.

iamlindoro

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Re: 100k Debt with a desire to move out and get married
« Reply #22 on: November 19, 2012, 07:45:29 PM »
To be frank, it doesn't sound as though your seasonal business is particularly lucrative, regardless of your ownership status.  Where do you live?  What kind of jobs are you seeking?  What is your degree in?  Getting an acceptable job can take time-- months or more.  How long did you look?  Almost anyone can get an entry level job in one of the trades that will pay better than $15/hour.  Have you considered or sought work in Construction, Electrical, or Plumbing?  These jobs aren't necessarily "glamour jobs," but they pay decent, and at the higher end pay quite well.  They also give you skills that allow you not to hire someone to perform services at your own house, and to easily find outside work when you need extra cash.

Are you not looking outside your chosen discipline because it's not where your heart is?  How many jobs did you apply for?  When you don't have a job, or the job you have is not cutting it, then finding a job that does is your job. 

Really, to be able to help you address your compensation problem (and it *is* a problem) we're going to need to have more details on that part.  Yeah, you can take the part of the advice that directly addresses your question (stay at home, do not get married, do not buy a house) but you should really be approaching this problem from all sides-- And that means getting your income way up.
« Last Edit: November 19, 2012, 07:47:28 PM by iamlindoro »

James

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Re: 100k Debt with a desire to move out and get married
« Reply #23 on: November 19, 2012, 08:09:12 PM »
The majority of our expenses go to food and gas, which is something that we try to cut back on, I am a very aggressive saver and try to stretch money as best I can (something I learned while on food stamps while serving in the Americorps) And my girlfriend is a very aggressive with her debt and keeps good records on what she spends money on. I recently signed up for mint.com in order to get an even better picture of my budgeting.

My Debt: I have a 9k car loan and am making payments on it while saving up.


Can I back thing up a bit?  Something here doesn't make sense. "I am a very aggressive saver and try to stretch money as best I can" does not mesh with "I have a 9k car loan".  A 9k car loan is inconsistent with your stated goals.  And I think you suggested later you may owe half of the value, making the care worth $18k?  You need to find a beater car asap.  Spend a few thousand to get a high mpg car that will work well for your long commute, and do it asap.  Then sell your current car and after paying off the loan you can apply the rest to your debt.  Your car payments will go away overnight and you can put your money into savings right now.  You will also need less cash on hand since you don't have to worry about making the car payments.


Once your debt is paid off I see no reason not to save up for a down payment.  Since it will take a while, you have some time to dwell on whether purchase vs rental is the better idea.  I would suggest leaning toward rental unless you can supply significant sweat equity to a purchase.  If you have good experience in renovation work (doing the work yourself), then I'd lean toward purchasing something to fix up.


You are in a good position overall, you are in a position to get rid of your only debt right away and have an ability to save most of what you earn which is awesome.  Take the next step after that very carefully, and maybe ask again here for more input once you are closer and have some solid numbers to look at.

cdngb

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Re: 100k Debt with a desire to move out and get married
« Reply #24 on: November 26, 2012, 02:45:56 PM »
Has anyone mentioned that he should not pay any of his girl friends debts?

These are hers and she should cover them both prior to and during the marriage.

They should be discussed with a lawyer so that if things do not work out he is not responsible for them.

With a divorce rate of 50% in the United States this should be considered.

grantmeaname

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Re: 100k Debt with a desire to move out and get married
« Reply #25 on: December 02, 2012, 09:45:47 AM »
Has anyone mentioned that he should not pay any of his girl friends debts?

These are hers and she should cover them both prior to and during the marriage.
A marriage where you're not together on a team isn't much of a marriage, now is it?