How to manage this? Student loans and property
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Anonymous
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Hi -
I think I'm posting in the right place? We will be selling in one state and moving to the DC area in the next few months. We will make approximately $125K with the property we sell. We intended to put it immediately into the next property that we buy, along with some savings, to be a decent down payment. We have some student loan debt, however. It's the only debt that we have (no car payment, no consumer debt, etc). It is not an insignificant sum - probably $80K? I may be off by +/- 10K. It's automatically deducted every month and it's a lot of money, like $1100/month. We don't qualify for lowered payments or fed forgiveness due to income and various other loopholes. We can buy a new place in the DC area with all closing costs covered and we have a year to do so (before the closing cost coverage benefit expires). We can live basically rent-free for a year with family, and save up a bunch of money that way, too. My question - is our original plan (to use proceeds for down payment) better than the alternative (use proceeds to pay off student debt, then build up a new down payment as quickly as possible)? Which is smarter? I have run the numbers so many different ways that my head is spinning. I think in all instances, it makes the most sense to buy within the year because closing costs amount to a significant portion of cash, too. Thanks. |
Anonymous
| What is the interest rate on the loans? |
Anonymous
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OP - I just looked them up. 5% (!!!!) is the one that is $38K, and 24K is at 6.5% (! even worse). I think DH has some lower ones, like 3% or so. Our mortgage is at 2.5% - has been great, but now we have to move.
If we pay these down, which seems like a good idea, we won't have 20% for a while, but we would pay PMI. I think even PMI is better than paying these interest rates. Am I correct? |
Anonymous
| I'd keep it so you can put 20% down. |
Anonymous
| Pay off the loan. Put the amount you were paying towards the loan to your mortgage when you get the house until you get rid of PMI |
Anonymous
| Are you able to take the deduction for student loans or do you make too much? |
Anonymous
| Live rent free with family for 8-10 months while you figure out exactly what you where you want to buy, what you need for a down payment, etc. Dump anything you don't need for the down payment into your loans-starting with the highest interest rate. You can probably pay off at least one of them in that time (depending on how much you need for a down payment). Buy the house before you lose the closing cost payments. |
Anonymous
| You should pay off the loans and free up $1100/month and then live with family to save a down payment on your next home. |
Anonymous
You can't get rid of pmi anymore. I would get the house first and put down 20% |
Anonymous
What? Of course you can. |
Anonymous
Note at the bottom: "If your loan is guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA), these rules generally won’t apply. If you have questions about mortgage insurance on an FHA or VA loan, contact your servicer." If you have an FHA loan, the MIP (mortgage insurance premium but similar to PMI) you must refinance to get rid of it. It no longer disappears automatically. OP, I would get rid of the 6.5% student loans and save the rest for a downpayment. |
Anonymous
Thanks - I think that's what we decided today, too. Thanks everyone. |