Pay off School Debt or Buy a House?

Question

My boyfriend graduates Med School this year with $120K in school debt. We want to move in together and buy a house. How can we get rid of his debt as well as start our lives together. We dont want to waste money and rent anymore and we dont want to live at our parents house. Is it possible to work something out??

If this helps, i make $50K in a very stable, secure job. He is "projected" to make at least $80K once he graduates in June.

To answer some questions:
I have excellent credit. We are looking at the $300k range for a house. We will be getting married in the next 2 years or so. We have no other debt. We both own our cars. I have plenty for a down payment. We are both "savers". Neither of us buy extravagant things. . . . Hopefully this will help others with answering my question. Thanks for all the advice so far !!!!

Answer 1

Hard to answer this question without knowing your combined income, how much your mortgage payments will be, how much his student loan payments are, etc. Your best bet is to talk to a mortgage broker and see what they will qualify you for, but keep in mind that they will tell you the absolute upper limit number and you should by no means get a mortgage for that amount unless you plan on living on Top Ramen & never leaving the house!

Answer 2

I would wait on the house. I would not mix money before you get married. If something happens, and I mean anything, you could be out quite a bit of change. He should keep living like a poor college student and pay off this student loans. His income should go up considerably in the next few years. Imagine, a net income of 2-300K between the two of you and no debt. You would be so far ahead of his colleagues.
If you do get the house you could be starting a rationalizing trend where next it's another car, a vacation, a boat, a 50 inch HDTv,etc....If you sacrifice for just 2 more years life will be much much sweeter. And, yes I am also a Dave Ramsey fan.

Answer 3

I really suggest (against most) to get out of debt first. You need an emergency fund and a down payment before you get a house. Even if you buy a new house something needs to be bought when you buy (curtains, appliances, etc).

Before you decide anything, I suggest you read: The Total Money Makeover by Ramsey and Money Matters by Dayton.

If you live at your parents for about a year, he will be able to knock out a lot of his school debt. You don't want the student loan to stay around forever. If he lives like he is still a resident for a couple more years his loan will be gone in now time.

Also, you should never buy a house with someone you aren't married too. What happens if you break up?

Answer 4

In general, I would say definitely buy the house. If you've already worked out that you can afford the mortgage payment (given your price range, expected interest rate, and it's not an "exotic" mortgage) and the student loan payment (you are getting it refinanced to a lower fixed rate, right?), then the house is a clear winner.

If you think of both things that you're purchasing as investments - the house on one hand, the education on the other - the education will give you positive returns whether you pay the loan off early or not - it's not like a creditor can come in and foreclose on your education. The house, however, only gives you an investment return if you actually buy it.

Keep up with the financial discipline - you're doing great.

Answer 5

I don't know what terms are going to be available to you, but making some assumptions, here's one possibility:

1) Buy a house for $300M. Put $60M down, get a mortgage for $240M. With a 6% 30-year fixed rate loan, your payment will be $1,439. Don't know what your property tax will be - depends on where you buy the house - but per year it could range from less than 1% to over 2.5% of the value of the house when you buy it.

2) Let's say the school loan has a 6% rate and no pre-payment penalty. If you pay $2,320 per month, you'll pay off the $120M in 5 years.

If your combined incomes are $130M/year, or $10,800/month, you'll probably be able to afford the above scenario. If you're going to buy the house without getting married, though, be careful how you hold title - you might want to each be a 50% tenant-in-common instead of joint tenants. Good luck.

Answer 6

The only way to get rid of debt is to pay it off. But you may not even need to necessarily pay off the school loans to buy the house you want. The answer is in your question: Is it possible to "work something out"? "Work something out" is the answer. No one said that to buy a house you have to be free of student loans. But to give you an exact answer, one would need more information: Do you have money for down payment? How much houses are where you live? What is the interest on the student loan?
But the answer is yes, most likely you can buy a house even without paying off student loans, you may struggle at first, but then your boyfriend’s income will be growing after a year or two.
Assuming your boyfriend starts at 150K per year, just on his income he should be able to service about 450-550K worth of debt with money left for RE taxes, insurance and other stuff. Your income should cover other living expenses. Subtract his school loan from this and you will know roughly what kind of house you can be looking at. But than again, this is a very rough estimate. I'll bet you that in time you will realize that his school loans will cause you less trouble than say a lease on Acura or some other luxury vehicle.
That's what I see a lot of young professionals do before they get a house; they run to a dealer to get a luxury car. Anyway, you get my idea. I think you are in good shape, and you can deal with it.
It will take a little self discipline, that's all.
Good luck.

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Considering additional details:

You should have no problems getting a house for 300K,
if you put 20% down your mortgage payment will be approx. 1516 per month (@6.5%), your real estate taxes will be about 500 per month another 50-60 per month will be insurance.
Student loan payment financed over 15 years will be about 1000 per month. So what do we have so far:
1516 + 500 + 60 + 1000 = 3200 per month to support the house and student loans.
Your monthly take home pay will be about 7800. Actually, may be even more since Uncle Sam will help some out too. Home mortgage interest, student loan interest and Real Estate Taxes are tax deductible on your federal return.
Believe it or not you may have some money left to fund 401(k).
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Answer 7

Buy a house? or do you mean get a 30 year or an interest only mortgage which you really can't afford.

Slow down, you don't have to live your life all in the space of a few months.

Firstly: Where is he going to end up and how much is he going to be making?

Secondly: Are you also going to be working, and how much are you going to be making?

Thirdly: Are you getting married or not, if so when?

Lastly: What other debt obligations do you both have?

If you want to be slaves to a bank (and I mean that in the most perjorative way you can imagine), go ahead and buy a house you can't afford; furnish it with gear on a credit card and live like most everyone else does.

If you want to be truly free from debt, actually own everything you have and sleep like a baby at night than I refer you to.

http://www.daveramsey.com/

Find a station he is on, listen to his show (fridays are the best day cause folks that are totally debt free call in to chop up credit cards and shred mortgage papers).

Good luck

Answer 8

Tricky decision. I think I would go with buying the house if you possibly can. Paying rent is just throwing money away. Ok you'll be in debt for a while but you have to live somewhere and that's always going to cost money so better spend it on a mortgage than rent and plan how to pay the debt off. Even if you have to take in lodgers to help you pay for it.

Good luck

Answer 9

In general I would say buy a house. A house is a financial asset. Owning a home will give you additional financial options that you would not otherwise have. The only catch here is that you have to be sure you can afford the house and afford to pay your monthly bill for the student loans. An apartment you can just leave. A house is yours and if you can't pay the bills there are serious consequences to your credit and future ability to borrow.

if you are pretty sure that you can afford it, buy the house. If you aren't sure, rent for a while until your financial picture becomes more stable.

Answer 10

You can do a loan consolidation and see if it would help you. You can buy the house and still pay on the student loans and eventually refinance to pay off depending on what kind of house you get. The only thing that concerns me is his debt to income ratio right now. He may need to work for a year before you all try to buy together. Unless your credit is good enough to carry you both. I hope this helps.