This is a follow-up post to my original
http://forum.mrmoneymustache.com/ask-a-mustachian/become-more-mustachian-by-buying-a-house/The ship is slowly steering to a better course. As a quick recap I used to have these debts in January:
Student loans ($12.5k a 5% - $250/mo.)
SUV loan ($27k at 3% - $490/mo.)
Mazda5 ($16k at 1.8% - $414/mo.)
and I now have these debts:
Sold the SUV and killed the loan (had to pay $5k for that privilege)
Student loans ($5k a 5% - set to be paid off in 3 months!!!)
Mazda5 ($13.5k at 1.8% - $414/mo.)
Also my rent increased from $1150 to $1575, but I am now 5 miles away from work (as opposed to 15 miles before) and bike or bus in depending on weather.
I am contemplating what to do once I finish paying off the student loans. Given my high rent compared to the price of homes (~$200k-$300k) and the fact that I plan on staying with my job for at least 10 years, I think I'd rather be paying for a mortgage than rent. The rental contract expires in July, so I am tethered to this for at least another 10 months.
I know keeping the Mazda5 debt is very frowned upon, but that is part of the compromise I made with my wife. She actually wants a larger vehicle for our 3 kids (age 8, 4, and 10 mo.), but is willing to wait if that means we can buy a house. With all of that said, here's a rough cut of our current financials:
Rent 1575
Food 800 (high, I know but about $100 in formula costs will disapear in 2 months, Still working on this)
Auto 650 (Include Mazda Loan)
Kids/Shopping 400
Utilites 300
Gym 100
Travel 100
Fun Money 250 (Again part of a compromise with my wife)
Gross Expenses 4175
Gross Monthly Income 9260.32
Taxes 1722.81
Insurance 616.7
401k 832.5
If you do the math, we're currently spending 63.5% of our take home income on expenses and saving the rest (36.5% saving rate). After paying off student loans, here are some of the plans I'm considering:
1. Save like crazy for a house down-payment over the next 10 months. Get an FHA loan for a $250k home. I think we should be able to save >$30k for it by the July time frame
2. Similar to the above, but renew my rental for another year. Without modifying my withholdings, we should be able to save >$60k for a conventional conforming loan.
3. Maximize tax deductions. Between IRAs and maxing the 401k I can save $1500 more in tax deferred accounts, but the would accrue down-payment money much slower. I would definitely need to wait another year before buying, and would definitely be a FHA loan. Saving rate would increase to 40% due to tax savings.
4. Similar to the above, but attack the Mazda loan, then max out retirement savings. (Saving rate of 45%)
Thoughts on these plans? I'm heavily considering 1-3 since we're not underwater on the mazda loan. Thank you for looking, I know this is a long post.