Author Topic: Student Loans and House Loan  (Read 2345 times)

Ankenystache

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Student Loans and House Loan
« on: January 20, 2017, 05:09:50 PM »
Hi everyone, I am a 24 y.o. in Iowa with my SO who I am going to be getting married too in Sept. We have a little bit of a problem with her current student loans. Some are parent plus loans with extremely outrageous rates(7.9%). Well it looks like I have a idea unless someone can explain to me the cons of doing so. So back about 4.5 years ago we decided to buy a house after I graduated and got a job and she was still in school. My parents ended up buying the house due to credit and I have been paying on it. Well fast forward now and the house we bought for 137k is now completely renovated (My dad owns construction company and I worked in it all my life until college) and could probably be worth somewhere in the 200k range (according to realtor, price comps). So what I am asking is that is it smart to combine her outrageous student loans with a house loan seeing as I will be buying it for the current owed price but the appraisal will come back much higher. We have been together going on 8 years now and living together for 5 years. My credit is 740 average depending on credit karma and credit card free scores. Other than student loans and a car loan (2013 Volt, 13,000k owed at 2.9%, recently bought to stop with a gas guzzling truck) we are debt free.

A little breakdown

Loans:
     Student: Unsubsidized- $14,500 @ 6.8%
                    Subsidized -$21,000 @ 3.4%
                    Perkin's Loan -$2,500 @ 5.0%
                    Parent Plus - $14,000 @ 7.9%
     Car: 2013 Volt- $13,000 @ 2.9%

I pay balances in full on credit cards every month so no debt there. I do not have cable tv and we dont really like to watch it anyway

Current Salary's -

Me- I am a collision tech for a body shop so I am paid on commission rate. Last year I earned about 55k but I switched jobs from a horrible employer. I am currently set to make about 75k this year before taxes. I contribute 15% to my 401k and a additional 75 per week to vanguard IRA.
SO- Just started a new job that is hourly at 19.50 a hour but is only guaranteed at 32 hours a week (usually gets 40 but we will go with the guarantee) so lets call it 32k a year. She has her degree for dietetics but recently graduated.

If you need any more info let me know. I already can afford the house and she can already afford her student loans, just want to do whats most efficient. Our spending habits are not that of the typical 24 year olds and we already have our FIRE plan for age 40 give or take a few years for economy.

Thanks again and feel free to lay it on me if I am overlooking something
« Last Edit: January 20, 2017, 05:18:04 PM by Janningc »

rpr

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Re: Student Loans and House Loan
« Reply #1 on: January 20, 2017, 05:29:10 PM »
Before you go with the method you propose, I'd get a good tax accountant's opinion on the tax implications of buying this house from your dad.

The loans are at higher interest but it is not outrageous. Assuming that you live a low COL place, you both could just live on your salary alone and use hers to pay off her SLs. You could be done with the loans in about two years. The problem with rolling over the loans into the house would be that they would then amortize over a much larger period unless you accelerate mortgage payments.

cchrissyy

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Re: Student Loans and House Loan
« Reply #2 on: January 20, 2017, 05:43:24 PM »
check if this is true where you live, but probably the higher you price the house, the higher your property taxes will be

I'd be inclined to make the house price as low as you reasonably/legally can

then  pay off the student loans yourselves

or if your parents want to help, they could use the money from the house sale to pay off the student loans and you pay them back instead of the bank

Ankenystache

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Re: Student Loans and House Loan
« Reply #3 on: January 20, 2017, 07:49:06 PM »
Thanks for the advice, I live in Ankeny, Iowa. The market is exploding here but I know tax rates are based on assessed value by the tax assessor.

When you say tax implications are you talking about the gift tax? From the way I would assume the deal would go down is that my parents would sell the house to me in a private sale and I would get my own financing.

Thanks again,
Conner

larmando

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Re: Student Loans and House Loan
« Reply #4 on: January 21, 2017, 12:54:13 AM »
The problem that could be there is that you are buying the house for "the current owed price", and it's actually worth "200k". So the delta there is effectively a gift you're getting.

notactiveanymore

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Re: Student Loans and House Loan
« Reply #5 on: January 21, 2017, 08:07:16 AM »
I do not believe it is strictly allowed to borrow more than the agreed upon sales price+fees so that you just get cash at closing. There are loans you could get if the extra was going to improvements on the home, but the situation you described is (I believe) an inducement to buy.

What you could do is purchase the house for 136, get a mortgage for that amount. Then apply for a HELOC to pay off the higher interest student loans. Or I guess technically you could do a cash out refinance at that point, but that seems unnecessarily complicated and could cost you in closing costs.

My advice in this situation, however, would be to just bust your butts for a year and pay off everything except the 3.4% loan.

Ankenystache

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Re: Student Loans and House Loan
« Reply #6 on: January 21, 2017, 08:22:29 AM »
I see what you are saying now. I will check into it more but I think after weighing all the options I will probably just buckle down and pay them off within the 2 years and we can just live off my salary. Thanks again for all the advice, it was just something that I was pondering on for a while

MattC

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Re: Student Loans and House Loan
« Reply #7 on: January 21, 2017, 08:43:46 AM »
Yeah, I second the talk to a tax person advice. 

In general, though, you probably should get the house into your name quickly in order to minimize the size of "gift" you receive when you take the house; that would also minimize the risk of your parents getting sued or passing away and putting you in a lurch.  It doesn't sound like you should have too much trouble getting a good mortgage rate.

Given that you get title to the house, there is some rationale to minimize the size of your mortgage.  You'll pay a couple percent between bank fees and mortgage taxes. So hypothetically, if you have money at 7.9 percent, but you can refinance at 3.9 percent, you're saving 4 percent (or maybe 4.something percent after factoring in the mortgage interest deduction).  But if your mortgage fees are also 4%, you'll only want to roll in that loan if you couldn't pay the loan off in about a year.  In your case it looks like you could blast through the higher interest debt in less than a year, so it might not be worth it.   

Goldielocks

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Re: Student Loans and House Loan
« Reply #8 on: January 22, 2017, 12:01:44 AM »
Okay,

1..  Parent plus loan is not your loan.  Really.  As a parent of a soon to be university student, I get it.  Parent plus loans are loans that the parent guarantees (and should be set up to have parent's pay IMO).   Discuss this with your future in-laws.

2.  Stafford / Perkins loans have a lot of great options for reduced payment, concessions, and free money (to offset interest, forgiveness options in future,etc.

3.  Your rates are not that bad, and your total seems huge now, but with you working and hopefully her working, should not pose a problem.


Pay off the unsubsidized one first.   For that one, you might want to take off a HELOC or other super low rate to pay off.

SachaFiscal

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Re: Student Loans and House Loan
« Reply #9 on: January 22, 2017, 02:29:44 PM »
I had a friend who payed off her and her husbands student loans with a HELOC that they got at a much lower interest rate than their loans.  I think you have to wait to be married to do this so that it is not considered a "gift" to your fiancÚ.  But, it looks like you will probably make ~75K total after taxes with both incomes and you have ~65K in debt.  If you could live on 40K a year for the next two years you could pay off these loans.  Then if you continued to live on 40K you could put all that money paying of the loans toward your retirement savings.