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So I've got 2 loans at around 14k: one car loan and one student loan. They are about the same interest rate but the car loan has 4 years left and the student loan many more than that. I just so happen to have around 14k sitting around and ready to use. We are planning on buying a house mid next-year. We have a plan to get to a 20% downpayment (goal of 80k). We are just about there now, but if I paid one of these loans off then we should get there again with an aggressive savings plan just in time for when we want to buy.
It seems like I've got three options:
#1: Pay the car loan and rebuild savings
#2: Pay the student loan (emotional victory!!) and rebuild savings
#3: keep the money for a down payment, continue monthly payments on car and student loan
Given how disgustingly expensive it is to buy in our area, getting an even higher downpayment might be nice. I don't think there's going to be a lot of houses that we're interested in under our budget in the areas we'll be looking. However, we might find a few here and there. I don't foresee making mortgage payments to be a big issue so we're treating the 20% downpayment as our limiter.
So which of these options looks most attractive to home lenders? We are first-time buyers and would really like to avoid paying PMI.
Unfortunately I don't have the money to pay both right now, nor do I have the heart to ask my wife to pay for me while we're already save, save, saving.
Unfortunately I don't have the money to pay both right now, nor do I have the heart to ask my wife to pay for me while we're already save, save, saving.
saving while paying off debt is counter productive. There are plenty of mortgage products that will get you through with a modest down payment...select a shorter term (15 yr) and you will see your PMI drop of quick.
What is your savings yield? What are your loan rates?
I bet you pay more in interest than you make from your savings.
saving while paying off debt is counter productive.
I was under the impression that lowering your debt to income ratio is favorable in the view of mortgage lenders (and credit bureaus). The goal here is to obtain the best mortgage terms we can while saving our 20% downpayment. Would paying off one of those debts not get us closer to our goal?
The big question is which debt would yield the most benefit for our goals when it is paid off? Or would we be better served by using that money as a bigger downpayment?
I was under the impression that lowering your debt to income ratio is favorable in the view of mortgage lenders (and credit bureaus). The goal here is to obtain the best mortgage terms we can while saving our 20% downpayment. Would paying off one of those debts not get us closer to our goal?
The big question is which debt would yield the most benefit for our goals when it is paid off? Or would we be better served by using that money as a bigger downpayment?
the game is NO DEBT. You are attractive when your debt to income ratio is lower.
the game is NO DEBT. You are attractive when your debt to income ratio is lower.
I understand that no debt is highly coveted. However, it doesn't support our desired timetable. We want to strike a balance between low debt and downpayment. So which loan is least damaging to my borrowing record: the student loan or the car loan that are approximately equal? Or would we be better served going for closer to a 100k downpayment?
I understand that no debt is highly coveted. However, it doesn't support our desired timetable. We want to strike a balance between low debt and downpayment. So which loan is least damaging to my borrowing record: the student loan or the car loan that are approximately equal? Or would we be better served going for closer to a 100k downpayment?
pay off the student loan, because the term is longer. You are saying that not only can you replenish the $14k loan, but that you can also get closer to your $80k down payment goal in the next 8 months...so if you paid off both of your loans, you could get there in what....12 months?
Remember, you have no payments, so this increases your savings.
Extremists would tell you to dump the ride, pay cash for one and pay off the student loan.
Not being able to talk about money with the spouse is not a very good street to live on.
pay off the student loan, because the term is longer. You are saying that not only can you replenish the $14k loan, but that you can also get closer to your $80k down payment goal in the next 8 months...so if you paid off both of your loans, you could get there in what....12 months?
Thanks Midwest, this is the type of advice I was looking for. We are basically at our desired downpayment now. Over the next 8 or so months I think we can replenish those funds that would be used for one of my loans. We certainly wouldn't be able to do that if I paid off both and it's tough to enter the market here with less than our goal if we want to hit the 20% down.
Quote:
Not being able to talk about money with the spouse is not a very good street to live on.
We talk about money all the time and don't have any problem doing so.
We talk about money all the time and don't have any problem doing so.
no problem. I misunderstood your earlier post...talking to the spouse sometimes is like choosing which hill you want to die on, so I can empathize with your position.
We were in a similiar boat and I chose to sell everything, pay cash for cars, pay off the student loan, and eat the PMI for 18 months until I could refinance.
Good luck, and Congrats!!!
Last edited by midwestlaxer; 10-11-2013 at 10:46 AM..
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