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Posted: Tue Sep 22, 2009 8:11 am Post subject: Should we pay off low-interest student loans or save for a d
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| My husband and I have about $120K in student loans at interest rates between 3 and 5%. We also have a decent amount saved, which we hope we'll be to put towards a 20% down payment for a house in 2 years. The amount we currently have saved is probably enough to reduce our student loan debt by about half. We would, of course, pay the highest interest rate loan off first. However, if we want to buy a home in two years, is it better to save the money for a down payment? I realize that if our debt was due to credit cards with exorbitant interest rates, this question would be easier -we'd pay off the debt. However, the interest rates are fairly low, although higher than the current rate for any savings accounts. But, as far as getting a mortgage - are we better off paying off the debt than having a bigger down payment? |
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Jane
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 gmakerley
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Joined: 09 Nov 2007
Posts: 12346
Location: bloomfield, ct
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Posted: Tue Sep 22, 2009 8:50 am Post subject:
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the description of your situation makes it difficult for me to go in one direction over the other, frankly. you've obviously made good choices thus far, financially, and you're blessed with the ability to save. the rates you noted are low on both savings and loans.
i guess i'd suggest you do a little of both - pay down what you can, because it's always a good thing to eliminate debt, but continue to save as well, because you'll want more than just a down payment when it comes time to make your purchase. you don't want to forget all the items you'll need as you enter a new home, and reserves are not really a luxury, but a need.
i hate to waffle on this question, but your stability seems to put you in good stead to take this in either direction.
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George M. Akerley
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Jane
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gmakerley
Community Mentor
Joined: 09 Nov 2007
Posts: 12346
Location: bloomfield, ct
53.01 Dollars($)
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Posted: Tue Sep 22, 2009 9:39 am Post subject:
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great credit will usually override much of anything else. if you are planning on seeking a conventional loan, it's best these days to have 20% down. fha loans, on which rates are quite comparable, don't require that for down payment.
however, with 20% down on a conventional loan, you won't need mortgage insurance and that is a good thing. with an fha loan, you have mortgage insurance regardless of your down payment. debt ratios are not a major issue with excellent credit, though you certainly don't want them particulary high.
without knowing what sort of housing market you're in (price, etc.), i'd still have to think that your student loan debt wouldn't get in the way of an approval, especially considering that you have, or claim to have, no revolving debt.
honestly, it's all in the details, but the impression you've provided is overwhelmingly favorable.
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George M. Akerley
Independent Contractor - Mortgage Consultant
Word of Excellence Editing/Writing/Proofreading
860-221-5044
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