Author Topic: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED  (Read 8660 times)

Easye418

  • Bristles
  • ***
  • Posts: 472
CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« on: August 20, 2015, 08:55:35 AM »
All,

Need some advice... I think I have a runway of about 12 months before baby talk gets serious. 

Age: Both 26 by end of 2015.  Currently 26 me and 25 her.
Salary: $116K Dual Income ($70k me/$46k her)
Tax Brackets: 25%, 0% state TX
Retirement Accounts:     $100k in Vanguard Lazy 3 fund (Bene IRA)
                                               $1.2k in new 401K (just started job 5 months ago)
                                               Recently paid off $16K debt, raised contributions from 6% to 15%, company match 3%
                                               I take my RMD and roll it into a tIRA.  Well, I "take my income" and roll it into my tIRA
Side income/ Tax refund: 
I played around with Taxcaster, I see that we should have somewhere between a $7k or greater tax refund. 
I also have $7k-$10k cash coming from side income at the end of the year. 
Along with, assets I am liquidating now that could provided $5-$10k cash.
--------------------------------------------------------------------------------------------------------------------------------
Debts:
--------------------------------------------------------------------------------------------------------------------------------
Loan                        Amount            Rate                             
Student Loan 1    $27,505.30    6.80%
Student Loan 2    $9,204.32    5.16%
Student Loan 3    $23,353.28    ~4%
Student Loan 4    $5,465.58    ~3%
------------------------------------------------------------------------------------------------------------------------------
Mortgage: 
Bought Sept 5th, 2014 @ $331K. 
Orig Loan:$313,785.00 @ 30 y fixed 4.125%
Current:   $308,629.62
PMI: $162/mo :( Face punch
Mortgage Payment (including PMI, Home Owners Ins) = $1,810.34
Property Tax: $9,000 a year :(  In a stupid MUD Tax area, adds 1% to my tax bill.
Total Mortgage Payment: ~$2,550.

Current Home value (today, take a while to sell): $360K
Expected Home value (optimistic, 4%-11% appreciation YoY): $375K-$400K
----------------------------------------------------------------------------------------------------------------------------------
When the baby comes, the wife is going to stay at home.  We will lose the $47k a year.  However, we have 12-24 months of dual income, and we can pound away at either:  Student Loans or Principal.  The Mortgage Payment is unacheiveable going down to one income @ $2,550.

Assuming $375k sale and $350K net:
Option 1: Beat the shit out of Student loans, sell the house and have equity of around $50k to put down on a house.
Option 2: Beat the shit out of Mortgage Principal, sell the house and have equity of around $75-$100k to put down on a house.

My ultimate goal: Allow my wife to stop working to raise our child(ren). 

Thoughts:  I think Option 2 is looking like a better, but not financially as smart idea because if I have $100K to put down on a say $325K house, I will have a $225k mortgage over 30 years.  The key here is the new house we are looking at will have a property tax payment of close to $6K, instead of $9k

Thoughts MMM?

                               
« Last Edit: September 11, 2015, 09:54:46 AM by Easye418 »

velocistar237

  • Handlebar Stache
  • *****
  • Posts: 1422
  • Location: Metro Boston
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #1 on: August 20, 2015, 09:21:52 AM »
Your appreciation is being eaten up by PMI. Sell the house now, buy a better house, pay down the 6.8% loan, invest the rest.

Will the new house payment fit within your future budget if you only put down 20%?

Will your wife go back to work at some point? $325K/$70K = 4.6, which is a pretty high house price for your income...

Valetta

  • 5 O'Clock Shadow
  • *
  • Posts: 72
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #2 on: August 20, 2015, 09:28:54 AM »
Will your wife go back to work at some point? $325K/$70K = 4.6, which is a pretty high house price for your income...

Agreed. I wouldn't buy a house that expensive on that income. You may be able to make the payments but it would be tight. One thing goes wrong and then you are in a bad spot pretty quickly.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #3 on: August 20, 2015, 09:31:10 AM »
Will your wife go back to work at some point? $325K/$70K = 4.6, which is a pretty high house price for your income...

Agreed. I wouldn't buy a house that expensive on that income. You may be able to make the payments but it would be tight. One thing goes wrong and then you are in a bad spot pretty quickly.
Your appreciation is being eaten up by PMI. Sell the house now, buy a better house, pay down the 6.8% loan, invest the rest.

Will the new house payment fit within your future budget if you only put down 20%?

Will your wife go back to work at some point? $325K/$70K = 4.6, which is a pretty high house price for your income...

Would it be off $325k/$70k?  Do you not take equity into the calculation at all?  If I can bring $115k of equity, $210/$70 = 3.  Still pretty high.

That's just the thing.  I am not going to remain at $70k forever.  I will at minimum get a 3% raise yearly.  I will also be looking for a Senior spot, if I don't get it at my current job within the next year - year and a half.

If I look outside the company, I can probably get $85k plus a bonus.  If I stay here, $80k plus a bonus.  Assuming that in two years, I am making $74k with 2 3% raises.
« Last Edit: August 20, 2015, 09:34:02 AM by Easye418 »

velocistar237

  • Handlebar Stache
  • *****
  • Posts: 1422
  • Location: Metro Boston
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #4 on: August 20, 2015, 09:51:54 AM »
Would it be off $325k/$70k?  Do you not take equity into the calculation at all?  If I can bring $115k of equity, $210/$70 = 3.  Still pretty high.

That's just the thing.  I am not going to remain at $70k forever.  I will at minimum get a 3% raise yearly.  I will also be looking for a Senior spot, if I don't get it at my current job within the next year - year and a half.

If I look outside the company, I can probably get $85k plus a bonus.  If I stay here, $80k plus a bonus.  Assuming that in two years, I am making $74k with 2 3% raises.

It's the home value/price, not the loan amount. The size of the expense doesn't change just because you pay for half of it up front. That equity is opportunity cost.

Raises of 3% are inflation adjustments, and the house will track with that. If you don't expect a promotion (+~10%), and your wife doesn't plan to go back to work, then 4.6 is your number, and it's high.

What is the $325K house like? Is it something your grandparents would have bought, or is it more like what your coworkers are buying? Is it close to work? Etc.

Ultimately, it's up to you, but this is your biggest decision, and you might not want to lock yourself into something that ends up being restrictive later.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #5 on: August 20, 2015, 10:07:23 AM »
Would it be off $325k/$70k?  Do you not take equity into the calculation at all?  If I can bring $115k of equity, $210/$70 = 3.  Still pretty high.

That's just the thing.  I am not going to remain at $70k forever.  I will at minimum get a 3% raise yearly.  I will also be looking for a Senior spot, if I don't get it at my current job within the next year - year and a half.

If I look outside the company, I can probably get $85k plus a bonus.  If I stay here, $80k plus a bonus.  Assuming that in two years, I am making $74k with 2 3% raises.

It's the home value/price, not the loan amount. The size of the expense doesn't change just because you pay for half of it up front. That equity is opportunity cost.

Raises of 3% are inflation adjustments, and the house will track with that. If you don't expect a promotion (+~10%), and your wife doesn't plan to go back to work, then 4.6 is your number, and it's high.

What is the $325K house like? Is it something your grandparents would have bought, or is it more like what your coworkers are buying? Is it close to work? Etc.

Ultimately, it's up to you, but this is your biggest decision, and you might not want to lock yourself into something that ends up being restrictive later.

$325k is a house built in mid 90's, 2500 sq ft, 4 beds/ 2/3 baths, room to grow.  Nice quaint house. 

At 70k with 15% contribution, I take home $3,800 a month.  If I have $115k equity on a $325k house, Mortgage would be $210kish (closing may screw this up) so say $225k Mortgage.

It would drop $300 a month in Property Tax and $162 of PMI.

$1,090 P&I + $500 Prop Tax + $150 Home Owners = $1,750 a month. 

From my current home, $2,550 - $1,750 = $800 a month savings. 

$3,800 - $1,750 = $2,050 left over - $1,000 in bills (excluding student loans) = $1,000 left over to put towards my balance of Student Loans.


It does seem the best course of action would be to focus on Student Loans and get rid of em once and for all and revisit the idea of selling the house next year.
« Last Edit: August 20, 2015, 10:20:51 AM by Easye418 »

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1671
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #6 on: August 20, 2015, 10:23:21 AM »
What do you mean by beat the shit out of the student loans?  What will the balances be when the babby arrives?

I played around with Taxcaster, I see that we should have somewhere between a $7k or greater tax refund. 
Why the heck don't you adjust your withholding lower?

I am thinking (depending on the answer to #1), you should rent after selling the house until the sl's are paid off, then build cash reserves, then buy a house.  As Dave Ramsey says,  "A house can be a blessing or a curse..."  An infant doesn't know the difference between a studio apartment and a McMansion.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #7 on: August 20, 2015, 10:29:15 AM »
What do you mean by beat the shit out of the student loans?  What will the balances be when the babby arrives?

I played around with Taxcaster, I see that we should have somewhere between a $7k or greater tax refund. 
Why the heck don't you adjust your withholding lower?

I am thinking (depending on the answer to #1), you should rent after selling the house until the sl's are paid off, then build cash reserves, then buy a house.  As Dave Ramsey says,  "A house can be a blessing or a curse..."  An infant doesn't know the difference between a studio apartment and a McMansion.

What do I mean by beat the shit out of student loans?
With the $3k dollars cash flow I have monthly.  Loans would be paid off in less than 2 years.  Not to mention, the $27k cash would go directly to that.  Loans could be gone forever in about a year.

I don't want to adjust it because we started paying my wife's Estimted Tax Payments Quaterly late and I am unsure what the penalty would be. 

JustGettingStarted1980

  • Bristles
  • ***
  • Posts: 377
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #8 on: August 20, 2015, 10:33:46 AM »
Why buy a new house at all? 375K vs 325 K is not all that different, really. Especially if you include transaction costs, moving costs, decorating costs, new furniture into the costs of selling the old place and getting a new place.

Hate to put this out there, but if you are "stretching" to pay off current home, and plan on stretching to pay for the new home with 70 K income only, then your wife cannot afford to stop working. Delaying having a baby may be needed as well.

My recommendations:

1. Reappraise your house -if it appraises at 375K (big if), then you only need to pay down an extra 10K or so to get the PMI eliminated, and save at least 7K of wasted money over the next 4 years. Which is a pretty good return on that extra cash on hand.

2. Refinance your school loans with Sofi, your current combined rate is >5%, you can likely get this down a couple points with your current income. If they won't do it, start snowballing those debts big time after PMI is gone.

3. Start using ALL of your wife's salary solely to pay off debts, you two need to get used to living off one income prior to making babies.

4. No kids for 3-4 years, wait for your salary to increase to the point that you can comfortably live off one income.

Hope this helps

Avidconsumer

  • Stubble
  • **
  • Posts: 122
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #9 on: August 20, 2015, 10:36:01 AM »
Would it be off $325k/$70k?  Do you not take equity into the calculation at all?  If I can bring $115k of equity, $210/$70 = 3.  Still pretty high.

That's just the thing.  I am not going to remain at $70k forever.  I will at minimum get a 3% raise yearly.  I will also be looking for a Senior spot, if I don't get it at my current job within the next year - year and a half.

If I look outside the company, I can probably get $85k plus a bonus.  If I stay here, $80k plus a bonus.  Assuming that in two years, I am making $74k with 2 3% raises.

It's the home value/price, not the loan amount. The size of the expense doesn't change just because you pay for half of it up front. That equity is opportunity cost.

Raises of 3% are inflation adjustments, and the house will track with that. If you don't expect a promotion (+~10%), and your wife doesn't plan to go back to work, then 4.6 is your number, and it's high.

What is the $325K house like? Is it something your grandparents would have bought, or is it more like what your coworkers are buying? Is it close to work? Etc.

Ultimately, it's up to you, but this is your biggest decision, and you might not want to lock yourself into something that ends up being restrictive later.

$325k is a house built in mid 90's, 2500 sq ft, 4 beds/ 2/3 baths, room to grow.  Nice quaint house. 

At 70k with 15% contribution, I take home $3,800 a month.  If I have $115k equity on a $325k house, Mortgage would be $210kish (closing may screw this up) so say $225k Mortgage.

It would drop $300 a month in Property Tax and $162 of PMI.

$1,090 P&I + $500 Prop Tax + $150 Home Owners = $1,750 a month. 

From my current home, $2,550 - $1,750 = $800 a month savings. 

$3,800 - $1,750 = $2,050 left over - $1,000 in bills (excluding student loans) = $1,000 left over to put towards my balance of Student Loans.


It does seem the best course of action would be to focus on Student Loans and get rid of em once and for all and revisit the idea of selling the house next year.

325k house. Enough said....

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #10 on: August 20, 2015, 10:37:59 AM »
Why buy a new house at all? 375K vs 325 K is not all that different, really. Especially if you include transaction costs, moving costs, decorating costs, new furniture into the costs of selling the old place and getting a new place.

Hate to put this out there, but if you are "stretching" to pay off current home, and plan on stretching to pay for the new home with 70 K income only, then your wife cannot afford to stop working. Delaying having a baby may be needed as well.

My recommendations:

1. Reappraise your house -if it appraises at 375K (big if), then you only need to pay down an extra 10K or so to get the PMI eliminated, and save at least 7K of wasted money over the next 4 years. Which is a pretty good return on that extra cash on hand.

2. Refinance your school loans with Sofi, your current combined rate is >5%, you can likely get this down a couple points with your current income. If they won't do it, start snowballing those debts big time after PMI is gone.

3. Start using ALL of your wife's salary solely to pay off debts, you two need to get used to living off one income prior to making babies.

4. No kids for 3-4 years, wait for your salary to increase to the point that you can comfortably live off one income.

Hope this helps

I thought it had to be so long before you can get your house re-appraised?  I have Chase Mortgage.

velocistar237

  • Handlebar Stache
  • *****
  • Posts: 1422
  • Location: Metro Boston
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #11 on: August 20, 2015, 11:00:26 AM »
From my current home, $2,550 - $1,750 = $800 a month savings. 

So you can make the payments, at a large up-front cost. Looking at payments is not a way to make good financial decisions. Do you want feasible, or do you want good?

It does seem the best course of action would be to focus on Student Loans and get rid of em once and for all and revisit the idea of selling the house next year.

If you're going to wait to sell, you still need to compare PMI to student loan payment. The effective interest rate of PMI isn't obvious, but it can be north of 8%. Are you wanting to pay down highest interest rate first, or make Dave Ramsey style motivational progress?

$325k is a house built in mid 90's, 2500 sq ft, 4 beds/ 2/3 baths, room to grow.  Nice quaint house.

If this is really what you want to do, why are you here? This forum is the place where people ask for the hard answers and then go make the changes, usually to get to a >50% savings rate. You appear to be in a low cost-of-living area with a decent income, which is the best of all worlds, but you don't want to make the changes.

Why buy a new house at all? 375K vs 325 K is not all that different, really. Especially if you include transaction costs, moving costs, decorating costs, new furniture into the costs of selling the old place and getting a new place.

Agreed. This would be mostly a lateral move, with benefits reduced by the transaction costs. I understand the taxes are $3K less, and PMI would be gone, but you'd still get way less out of this than you could.

I am thinking (depending on the answer to #1), you should rent after selling the house

I agree with this. You could sort out the finances, use it as an opportunity to adjust your consumption level, and have the freedom to look for a new job without having to worry about the anchor of owning a house.

What are your long-term goals? Retirement? Within how many years?

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #12 on: August 20, 2015, 11:27:09 AM »

If you're going to wait to sell, you still need to compare PMI to student loan payment. The effective interest rate of PMI isn't obvious, but it can be north of 8%. Are you wanting to pay down highest interest rate first, or make Dave Ramsey style motivational progress?

Dave Ramsey for sure.

I was not taking Homestead exemption into my property tax example. 

My tax rate is 2.76%.  Someone told me a rule of thumb is (Appraised Value X tax rate) * 80% = property tax bill.

If so, that will lower my overall mortgage to $2,400. 

I am starting to reconsider the sell because of the transaction costs of lateral movement (like you said). 

I don't mind working honestly, I wouldnt mind retiring early 50's though so about 25 years left of working.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2429
  • Location: Sacramento, CA
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #13 on: August 20, 2015, 11:33:29 AM »
I think JustGettingStarted1980's point is "Get out of PMI as quickly as possible!". Since you seem unwilling to make a significant change to the cost of the house you live in, this means paying down your mortgage until you have 20% equity. I wouldn't worry about rules on reappriasing the house until you get to the point where you believe your equity is 20%.

Yes, you can stay in a fancypants house, stress any time your income is in jeopardy, and work until you're 65+ if that's what you want. On the other hand you could choose to downsize your housing so that you can reach finanical independence much sooner; you'll get lots of support and encouragement on that path on this forum. If your true desire is financial stability on a single income while stay at home mom raises kids, you can choose to happily do that in a 2-3 bedroom 1-2 bath house.

humbleMouse

  • Bristles
  • ***
  • Posts: 297
  • Location: Minneapolis
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #14 on: August 20, 2015, 11:38:47 AM »
What area are you living in?  Why do you need a 2500sqft house?  That is enormous.  What about buying a smaller house or (godforbid) renting somewhere cheaper while you raise your baby for a couple years?  Then you could save up a ton of money and buy whatever house you want.


Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #15 on: August 20, 2015, 11:49:43 AM »
I think JustGettingStarted1980's point is "Get out of PMI as quickly as possible!". Since you seem unwilling to make a significant change to the cost of the house you live in, this means paying down your mortgage until you have 20% equity. I wouldn't worry about rules on reappriasing the house until you get to the point where you believe your equity is 20%.

Yes, you can stay in a fancypants house, stress any time your income is in jeopardy, and work until you're 65+ if that's what you want. On the other hand you could choose to downsize your housing so that you can reach finanical independence much sooner; you'll get lots of support and encouragement on that path on this forum. If your true desire is financial stability on a single income while stay at home mom raises kids, you can choose to happily do that in a 2-3 bedroom 1-2 bath house.

Looks like it will take $37,000 dollars to get to 80% equity.

So if I can scrap together $65,000 plus $37,000, I will open up some new cash flow.  I think I can do both within 18-24 months.

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #16 on: August 20, 2015, 12:15:18 PM »
It is my opinion that you can't afford that home once your wife stops working, regardless of whether or not you have PMI or student loans. Don't get stuck with both of you having to work just to afford your home. If she wants to work later, that's awesome, but leave the option for her to stay home indefinitely if it works best for your family.

PMI under $200 is the least of your worries when you are paying 9K/year in property taxes. Holy cow! In my mind, this would be the main reason to buy smaller or to rent. The smaller your mortgage, the smaller your taxes.

As far as needing room to grow, to give you a reference point, we currently live in a 1,600 sq foot home with three kids. You don't need that much room to grow, and you have to remember that kids start out tiny. They won't be the size of adults for over a decade. You always have the option to move into a larger home down the line, but my guess is that your priorities will shift by that point and you'll realize that cheaper, smaller homes rock and are the single best way to build your mustache.

If you're willing to drop to a home worth 250K or less, then move before you have kids. If not, stay where you are. Moving and closing costs are expensive and you haven't been in your home that long. You will miss out on any potential appreciation if you move so soon.

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #17 on: August 20, 2015, 12:23:18 PM »
I wanted to add that my husband makes 90K a year. As a SAHM, I pull in less than 10K doing side projects. Our mortgage and taxes are 1K on a 125K mortgage. With three kids, we are not swimming in money even with this low mortgage payment. Kids are expensive long term. There's food, health costs, clothing, shoes (the bane of our budget honestly), diapers, etc. etc.

I personally don't know how you could swing that home long term on one income, unless your income rises by at least 50K or more. Is that possible?


Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #18 on: August 20, 2015, 12:36:30 PM »
I wanted to add that my husband makes 90K a year. As a SAHM, I pull in less than 10K doing side projects. Our mortgage and taxes are 1K on a 125K mortgage. With three kids, we are not swimming in money even with this low mortgage payment. Kids are expensive long term. There's food, health costs, clothing, shoes (the bane of our budget honestly), diapers, etc. etc.

I personally don't know how you could swing that home long term on one income, unless your income rises by at least 50K or more. Is that possible?

$70K + $50K = $120K. 

Currently, we are making $116k a year, this leads to $3,000 free cash flow a month.

If student loans and PMI were elminated, I couldn't see an issue that if I made $90k to afford the house comfortably. 

Not to mention, I will drop from a 25% tax bracket to a 15% tax bracket easily.

Property Tax is $7.5k.

$100k salary, $1k mortgage, how do you not have spare income?  That's like $8,300 gross a month.
« Last Edit: August 20, 2015, 12:38:41 PM by Easye418 »

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #19 on: August 20, 2015, 02:01:57 PM »
What are your long-term goals? Retirement? Within how many years?

Here's a different topic....

I have $19K dollars sitting in my bank right now.  I owe my old company $19k in $998 increments over the next 20 months.  I figured I would leave the money and write them a check every month for $998 since it is 0% interest loan to them.

Would it be worth taking say $15K of that money and putting it towards high interest loans and then "paying myself" back $1000 every month for 15 months?
« Last Edit: August 20, 2015, 02:04:15 PM by Easye418 »

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #20 on: August 20, 2015, 02:09:10 PM »
I wanted to add that my husband makes 90K a year. As a SAHM, I pull in less than 10K doing side projects. Our mortgage and taxes are 1K on a 125K mortgage. With three kids, we are not swimming in money even with this low mortgage payment. Kids are expensive long term. There's food, health costs, clothing, shoes (the bane of our budget honestly), diapers, etc. etc.

I personally don't know how you could swing that home long term on one income, unless your income rises by at least 50K or more. Is that possible?

$70K + $50K = $120K. 

Currently, we are making $116k a year, this leads to $3,000 free cash flow a month.

If student loans and PMI were elminated, I couldn't see an issue that if I made $90k to afford the house comfortably. 

Not to mention, I will drop from a 25% tax bracket to a 15% tax bracket easily.

Property Tax is $7.5k.

$100k salary, $1k mortgage, how do you not have spare income?  That's like $8,300 gross a month.

I didn't say lacked spare income. I said we are not rolling in the dough. My point was merely to provide some perspective for you from someone who is ten years older and in the position you eventually want to achieve, namely the ability to have a stay at home parent. Once you factor in maxxing out retirement and health care accounts, which is pretty much the bare bones of what people come here to do, we are not swimming in money even with a mortgage more than half yours. Even if you don't want to retire early, the consensus around here is a desire to achieve financial independence. Even at 100K and a 1K mortgage, we are a long way from that, in large part because we have children and (mostly) one income.   

My point was that, once your wife's income goes away, that house is too expensive for a couple who makes 70K. Sure, on paper you can afford it now, but when you have that baby, you will enter the ranks of the house poor. I think deep down you know that. You just aren't ready yet to downsize your house to the point at which you can comfortably afford to live on just your income long term and build your wealth successfully.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #21 on: August 20, 2015, 02:23:25 PM »
School district is a dumb thing to worry about when you're not even expecting yet. You have five or six years from conception to find a good school district. How about you don't buy a house for a few years?

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #22 on: August 20, 2015, 02:26:13 PM »

My point was that, once your wife's income goes away, that house is too expensive for a couple who makes 70K. Sure, on paper you can afford it now, but when you have that baby, you will enter the ranks of the house poor. I think deep down you know that. You just aren't ready yet to downsize your house to the point at which you can comfortably afford to live on just your income long term and build your wealth successfully.

Oh and I get the point.  I would hope by the time my wife is due, I will get a nice promotion by then.  Either way, at 5 years experience, I am going for the Senior Position, with or without my company.  I know I will be able to get a 10-15% base bump with bonus.

However, if I plan like I am living off $70k, I will be that much better in the future.

I already have $2,000 dollars ready for student loans (sold some assets/$650 from last check).  Next Friday, I will have another $2,000. 

The chipping away process has begun!

School district is a dumb thing to worry about when you're not even expecting yet. You have five or six years from conception to find a good school district. How about you don't buy a house for a few years?

Well, like the others have posted, transaction costs will hurt us big time on buying and selling so I think we are going to stay put unless push comes to shove. Doesn't hurt the resale value of your home though and what happens if we want to stay in our next place for 10-15 years?
« Last Edit: August 20, 2015, 02:29:48 PM by Easye418 »

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #23 on: August 20, 2015, 02:29:38 PM »
What are your long-term goals? Retirement? Within how many years?

Here's a different topic....

I have $19K dollars sitting in my bank right now.  I owe my old company $19k in $998 increments over the next 20 months.  I figured I would leave the money and write them a check every month for $998 since it is 0% interest loan to them.

Would it be worth taking say $15K of that money and putting it towards high interest loans and then "paying myself" back $1000 every month for 15 months?

Yes, especially if it's sitting in a bank account and not in the market.

Have you looking into consolidating your student loans? There's lots of good information on here on how to do that.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #24 on: August 20, 2015, 02:30:45 PM »
What are your long-term goals? Retirement? Within how many years?

Here's a different topic....

I have $19K dollars sitting in my bank right now.  I owe my old company $19k in $998 increments over the next 20 months.  I figured I would leave the money and write them a check every month for $998 since it is 0% interest loan to them.

Would it be worth taking say $15K of that money and putting it towards high interest loans and then "paying myself" back $1000 every month for 15 months?

Yes, especially if it's sitting in a bank account and not in the market.

Have you looking into consolidating your student loans? There's lots of good information on here on how to do that.

Sitting in Discover.... I actually have $27K dollars sitting in that Discover Account.  I just don't want to hedge my bets too far and have cushion.

Is it worth it?  If I use the $15k and plus the $4k towards the 6.8% loans, the majority of the loans will be around 4%.

If I pay all the loans off within 2 years, the savings are minimal.
« Last Edit: August 20, 2015, 02:33:02 PM by Easye418 »

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #25 on: August 20, 2015, 02:38:04 PM »
What are your long-term goals? Retirement? Within how many years?

Here's a different topic....

I have $19K dollars sitting in my bank right now.  I owe my old company $19k in $998 increments over the next 20 months.  I figured I would leave the money and write them a check every month for $998 since it is 0% interest loan to them.

Would it be worth taking say $15K of that money and putting it towards high interest loans and then "paying myself" back $1000 every month for 15 months?

Yes, especially if it's sitting in a bank account and not in the market.

Have you looking into consolidating your student loans? There's lots of good information on here on how to do that.

Sitting in Discover.... I actually have $27K dollars sitting in that Discover Account.  I just don't want to hedge my bets too far and have cushion.

Is it worth it?  If I use the $15k and plus the $4k towards the 6.8% loans, the majority of the loans will be around 4%.

If I pay all the loans off within 2 years, the savings are minimal.

I guess the point would be that if you got a more favorable, consolidated interest rate, you wouldn't have to pay off that 6+% loan and could instead leverage your money in an investment account to earn more than you would be paying on the loans.

I'm not saying that killing the student loans is a bad choice. It certainly isn't. I'm just saying that refinancing could give you more options. How much money would paying off all your loans free up? I.e. how much are you paying monthly? How much would you be paying if you consolidated? Aren't there calculators that might give you an indication?

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #26 on: August 20, 2015, 03:04:49 PM »
What are your long-term goals? Retirement? Within how many years?

Here's a different topic....

I have $19K dollars sitting in my bank right now.  I owe my old company $19k in $998 increments over the next 20 months.  I figured I would leave the money and write them a check every month for $998 since it is 0% interest loan to them.

Would it be worth taking say $15K of that money and putting it towards high interest loans and then "paying myself" back $1000 every month for 15 months?

Yes, especially if it's sitting in a bank account and not in the market.

Have you looking into consolidating your student loans? There's lots of good information on here on how to do that.

Sitting in Discover.... I actually have $27K dollars sitting in that Discover Account.  I just don't want to hedge my bets too far and have cushion.

Is it worth it?  If I use the $15k and plus the $4k towards the 6.8% loans, the majority of the loans will be around 4%.

If I pay all the loans off within 2 years, the savings are minimal.

I guess the point would be that if you got a more favorable, consolidated interest rate, you wouldn't have to pay off that 6+% loan and could instead leverage your money in an investment account to earn more than you would be paying on the loans.

I'm not saying that killing the student loans is a bad choice. It certainly isn't. I'm just saying that refinancing could give you more options. How much money would paying off all your loans free up? I.e. how much are you paying monthly? How much would you be paying if you consolidated? Aren't there calculators that might give you an indication?

For instance, I could refi with Citizens 20 year fixed @ 5.19%.  $50,000 would cost me $335 a month.  Obviously, I would only take out anything higher than 5.19%. 

Or I could chance it and refi the $65K with a variable 5 year loan @ 2.19% and pay $1000 a month.  I would have a 3% cushion before I start losing money.
« Last Edit: August 20, 2015, 03:07:19 PM by Easye418 »

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #27 on: August 20, 2015, 03:07:19 PM »
I was thinking you'd get lower than that. In that case, your plan of getting rid of the 6% one ASAP is smarter. Then I'd pay the minimum on the lower interest rate ones and work on other goals like getting rid of PMI.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #28 on: August 20, 2015, 03:08:26 PM »
I was thinking you'd get lower than that. In that case, your plan of getting rid of the 6% one ASAP is smarter. Then I'd pay the minimum on the lower interest rate ones and work on other goals like getting rid of PMI.

Well, with only $27k dollars of 6.8%,  I could have that gone in a few months.  Then work on piling down the mortgage to get rid of PMI and maybe even lower for a no cost re-fi.

Merrie

  • Bristles
  • ***
  • Posts: 465
  • Location: Midwest
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan
« Reply #29 on: August 20, 2015, 09:09:48 PM »
How many kids are you hoping to have? My husband and I bought a 4br/3ba house because I wanted 3 kids and he was adamant everybody had to be able to have their own room. I really do regret it and wish I'd gone for something smaller and cheaper, but at this point the idea of getting out of the deal is not so simple. If you only want 1 or 2 kids you can probably be totally comfy in a 3 bedroom house and the financials will be a lot better. A 325k house on a 70-80k a year income sounds pretty painful.

Easye418

  • Bristles
  • ***
  • Posts: 472
All,

Found an interesting house at $279k.

If I could sell current house for $365k, would it be worth it?

Figured I would lose $37,500 to transaction costs and $8k to capital gains.

Or would it be best to wait it out 12 months, hope for more appreciation, try to sell at $400k, avoid capital gains tax, and move then into a $275k house? Figure at that time, I'll have 6.8% loans paid off and $15k more down on Principal. So potentially, $67k to put towards $275k mortgage = $208k note @ 30 year.
« Last Edit: August 22, 2015, 02:12:31 PM by Easye418 »

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Unless you're in Midland and oil goes back to $100, I doubt you'll have 10% appreciation in the next year. Certainly you shouldn't assume you will.

Easye418

  • Bristles
  • ***
  • Posts: 472
Unless you're in Midland and oil goes back to $100, I doubt you'll have 10% appreciation in the next year. Certainly you shouldn't assume you will.

Even at 6%, $385k,  I can drive a mortgage down to $225kish, no PMI, and lower property tax. Estimated mortgage $1700-$1750 a month. With a 15% savings in 401k, I'd bring home $3,900 (if I don't get a raise). I'd have $2,100ish leftover.

Sounds like a better solution, maybe not super mustachian but better.

cchrissyy

  • Pencil Stache
  • ****
  • Posts: 743
  • Location: SF Bay Area
About adjusting your withholdings, and your question of what is the impact of that your wife wasn't sending in estimated payments earlier this year, the answer is that the only way there is a penalty for failing to make estimated payments is 1) you owed the IRS on last year's return and 2) you owe them at least $1000 this year's return.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes

So, if that is you, go ahead and change your withholdings, aiming to still be owed a refund but much smaller.

I agree with everybody who says the house options you are offering sound like a reach on the single income. I know you'll get raises, but still, if you guys are really set on the SAHM thing, now is the time to make your expenses low enough for your income alone.   

Also 2500sf is enormous! especially since you don't even have kids yet, and they start out so small :)  I have 3 school-age kids and we have lived in 1100, 1400, 1600, and 2000 square feet houses and they were all FINE. Only the 1100 felt small and it did require all 3 of them share one bedroom.  Even now that they are big kids, 2500 sounds crazy huge to me, way more space then we could use, and I just start thinking of all those rooms to keep vacuumed and dusted, all those rooms that require purchased furniture to fill them, and all those rooms that will have to be heated or air-conditioned every month.  No thank you!

 (and, PS, that baby may not come when you want anyway. Lots of people have trouble conceiving. In that case I think it would suck a big extra to live just the 2 of you in a big 4-bedroom house for years ahead of time.  Or, what if you have baby 1, but something happens where more aren't medically possible, or you guys change your mind about how many kids sound good?)

2 people and a baby can be happy in a 1 or 2 bedroom apartment. I promise the baby won't know the difference. You can sell now and get free of the house related payments, invest that equity until you really know how many kids you will end up with, whether or not you changed jobs and commute logistics, whether or not she end sup returning to work, and what school boundaries you truly want to be in.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Prepping to sell home: Pay Mortgage or Pay Student Loan UPDATED
« Reply #34 on: September 11, 2015, 09:54:33 AM »
So after a few weeks of thinking about it, we met with a realtor (who sold a house down the street from me in two weeks). She is going to get me a number on what she thinks she can sell my house for. When we intially spoke, she said all builders are on hold until the new year to start building and some builders are 12 month build time. She said bare minimum $369k-$394k.

At $369K, net proceeds of $29,495 (after 15% capital gains tax, "make" $7k over what I paid, break even scenario pretty much)
At $394k, net proceeds of $49,256 (after 15% capital gains tax, "make" $26k over what I paid, obviously optimal situation)

We have set a top dollar range of $275K (from $331K) with either situation. Probably will fall somewhere between $250K-$275K. Biggest effect with be property tax dropping significantly ($3k a year, $250), hopefully no PMI ($160 a month), lower mortgage ($300ish) = $710 cash flow coming back at least.

With that being said, we think this would be the best scenario either way. We plan on renting on the short term for 6 months then taking our time to find the right house. Since we are paying elevated property tax, higher mortgage, more utilities, we feel we 6 months of renting (save at least $750 on payment) along with $2,200, we can really do damage in this next 12 months.

--------------------------------------------------------------------------------------------------------------------------------------------

With all of the above being said (TL:DR, selling home within 3 months, renting for 6, buying $250-$275k range),
I have $61k of Student Loans remanining and currently we are paying $2,200 a month into them. Would it be better for the long term to start piling this $2,200/mo away to lay down on a larger down payment and re-fi Student Loans?

Bruinguy

  • Stubble
  • **
  • Posts: 141
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #35 on: September 11, 2015, 10:26:17 AM »
If it is cheaper to rent than own, why not rent until you can pay off the student loans and save for the down payment?

I'm not sure that I'm following your numbers, but it looks like you might be able to set aside the $2,200, plus the $750.  If you put all of that toward your loans, you could pay them off in less than two years!

Hummer

  • 5 O'Clock Shadow
  • *
  • Posts: 73
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #36 on: September 11, 2015, 10:43:18 AM »
Holy moly, 9K for property tax?....

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #37 on: September 11, 2015, 10:52:59 AM »
Holy moly, 9K for property tax?....

Texas. No state income tax at all. And even in Pennsylvania where you do pay 4% to the state/local stuff, $10k in taxes on a $300k house isn't crazy.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #38 on: September 11, 2015, 11:14:00 AM »
If it is cheaper to rent than own, why not rent until you can pay off the student loans and save for the down payment?

I'm not sure that I'm following your numbers, but it looks like you might be able to set aside the $2,200, plus the $750.  If you put all of that toward your loans, you could pay them off in less than two years!

Since we have 3 dogs, its extremely difficult to rent anything else but a house.  A house rental will run $1,600-$1,800 a month.  Thats how much my mortgage would cost on a $275K house, maybe less out the door.

Correct, $2,200 plus $750.  Plus the wildcards are my wife is looking for a new job after she gets her BSN in 4 weeks! so we could bump her up to $55k-$60k instead of $46.9k.  Plus no self-employment tax as well.  Other wildcard is if I get a raise, I am probably looking at high $70k's-low 80's with a bonus.

Holy moly, 9K for property tax?....
Holy moly, 9K for property tax?....

Texas. No state income tax at all. And even in Pennsylvania where you do pay 4% to the state/local stuff, $10k in taxes on a $300k house isn't crazy.
Actually, $9k is crazy on a $300k house.  Property taxes should be in the 2%, I am at 2.73%.  My BIL house is $415K and he pays $6-$7k.  But yes, no state income tax so that makes up for it.

domo

  • 5 O'Clock Shadow
  • *
  • Posts: 37
  • Age: 34
  • Location: New Orleans
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #39 on: September 11, 2015, 12:58:29 PM »
Refinance the student loans and sell your house. You may have more time than you think. It takes on average 3 years to get pregnant when you first start trying. Still, plan on getting pregnant immediately. Your wife's income in the meantime should be put towards student loans. Your budget should not rely on that money.

justajane

  • Handlebar Stache
  • *****
  • Posts: 2147
  • Location: Midwest
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #40 on: September 11, 2015, 01:12:11 PM »
It takes on average 3 years to get pregnant when you first start trying.

??? I've never seen an "average" higher than 1 year, even factoring Advanced Maternal Age.

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #41 on: September 11, 2015, 01:23:09 PM »
Yeah, I thought medical consultation was recommended when you'd been trying for a year without success.

charis

  • Handlebar Stache
  • *****
  • Posts: 1740
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #42 on: September 11, 2015, 01:31:09 PM »
It takes on average 3 years to get pregnant when you first start trying.

??? I've never seen an "average" higher than 1 year, even factoring Advanced Maternal Age.

Um, yeah, that is certainly not the average unless you are dealing with fertility problems.  Most fertile couples conceive within 6 months.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #43 on: September 11, 2015, 01:37:19 PM »
Just got the number from my realtor, she thinks $392k-$395k, think it is a no brainer at this point, given what downsizing means for us having a family.  It's almost like a "hey, you screwed up, but I like you, so here is your money back plus so don't fuck it up"

ShoulderThingThatGoesUp

  • Magnum Stache
  • ******
  • Posts: 3057
  • Location: Emmaus, PA
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #44 on: September 11, 2015, 02:53:20 PM »
Just got the number from my realtor, she thinks $392k-$395k, think it is a no brainer at this point, given what downsizing means for us having a family.  It's almost like a "hey, you screwed up, but I like you, so here is your money back plus so don't fuck it up"

Great that it's not costing you.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #45 on: September 16, 2015, 08:11:47 AM »
So met with realtor again, she feels very comfortable at $390k, which would be net proceeds of $46k (includes property tax but does not include Capital Gains).  We would end up $37,000 cash ($23k profit) (+ leftover in my escrow, prorated amount from Home Owner's Policy)= I'd guess $42k-$45k cash.

I asked my CPA about long term capital gains and he said 15%.  Can anyone confirm that it would be on the value of $390-$331 = $59,000 * 15% = $8,850.

Nervous about selling, but dropping the mortgage to $1700-$1800 would be a HUGE step towards one income family. 

Not to mention, phase 2 is going to get started in Jan 2016 so why buy used when you can buy new, even with a 6+ month build time.

jwright

  • Bristles
  • ***
  • Posts: 266
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #46 on: September 16, 2015, 09:34:43 AM »
So met with realtor again, she feels very comfortable at $390k, which would be net proceeds of $46k (includes property tax but does not include Capital Gains).  We would end up $37,000 cash ($23k profit) (+ leftover in my escrow, prorated amount from Home Owner's Policy)= I'd guess $42k-$45k cash.

I asked my CPA about long term capital gains and he said 15%.  Can anyone confirm that it would be on the value of $390-$331 = $59,000 * 15% = $8,850.

Nervous about selling, but dropping the mortgage to $1700-$1800 would be a HUGE step towards one income family. 

Not to mention, phase 2 is going to get started in Jan 2016 so why buy used when you can buy new, even with a 6+ month build time.

When calculating your gain on sale, don't forget to factor in the closing costs paid upon purchase, upon sale and costs for any improvements done on the property since you've owned it.  These items will increase your basis and lower your gain.

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #47 on: September 16, 2015, 09:43:55 AM »
So met with realtor again, she feels very comfortable at $390k, which would be net proceeds of $46k (includes property tax but does not include Capital Gains).  We would end up $37,000 cash ($23k profit) (+ leftover in my escrow, prorated amount from Home Owner's Policy)= I'd guess $42k-$45k cash.

I asked my CPA about long term capital gains and he said 15%.  Can anyone confirm that it would be on the value of $390-$331 = $59,000 * 15% = $8,850.

Nervous about selling, but dropping the mortgage to $1700-$1800 would be a HUGE step towards one income family. 

Not to mention, phase 2 is going to get started in Jan 2016 so why buy used when you can buy new, even with a 6+ month build time.

When calculating your gain on sale, don't forget to factor in the closing costs paid upon purchase, upon sale and costs for any improvements done on the property since you've owned it.  These items will increase your basis and lower your gain.

Thank you for this.

This will cut down my gains a bunch.  $25k closing cost on the sale, probably few grand on the sale, few grand on improvements, should cut the gains portion down to half.  So only $4k-$5k.

jwright

  • Bristles
  • ***
  • Posts: 266
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #48 on: September 16, 2015, 09:46:30 AM »
So met with realtor again, she feels very comfortable at $390k, which would be net proceeds of $46k (includes property tax but does not include Capital Gains).  We would end up $37,000 cash ($23k profit) (+ leftover in my escrow, prorated amount from Home Owner's Policy)= I'd guess $42k-$45k cash.

I asked my CPA about long term capital gains and he said 15%.  Can anyone confirm that it would be on the value of $390-$331 = $59,000 * 15% = $8,850.

Nervous about selling, but dropping the mortgage to $1700-$1800 would be a HUGE step towards one income family. 

Not to mention, phase 2 is going to get started in Jan 2016 so why buy used when you can buy new, even with a 6+ month build time.

When calculating your gain on sale, don't forget to factor in the closing costs paid upon purchase, upon sale and costs for any improvements done on the property since you've owned it.  These items will increase your basis and lower your gain.

Thank you for this.

This will cut down my gains a bunch.  $25k closing cost on the sale, probably few grand on the sale, few grand on improvements, should cut the gains portion down to half.  So only $4k-$5k.

I'm surprised you would have that much on the purchase ($25K); isn't it typical for seller to pay closing costs (at least the commissions)?  Loan fees, interest and insurance would not count.  But commission and deed stamps, etc would (to the extent that you paid them).

Easye418

  • Bristles
  • ***
  • Posts: 472
Re: CASE STUDY: Pay Mortgage or Pay Student Loan UPDATED
« Reply #49 on: September 16, 2015, 09:47:44 AM »

I'm surprised you would have that much on the purchase ($25K); isn't it typical for seller to pay closing costs (at least the commissions)?  Loan fees, interest and insurance would not count.  But commission and deed stamps, etc would (to the extent that you paid them).

$25k commission is on the house sale, few grand on the purchase**