What can you buy with a student loan

what can you buy with a student loan


Liz Weston, one of the best personal finance experts out there, recently received this question from a reader :

Next year we will be shopping for a house in the $150,000-to-$200,000 range and hope to have $20,000 to $30,000 saved for a down payment. We have about $75,000 in student loans we are paying down. Would it be better to eliminate, say, one $3,000 student loan early or keep the $3,000 for a bigger down payment?

The reader is asking the wrong question. Whether to put $3,000 in savings or toward the loan is a deck chairs on the Titanic conversation. The real question is “should we try to buy a house or should we pay off our student loans?”

The answer depends on a few things. The conservative position on this topic is to say, “Pay off your student loans before you try to buy a house.” That’s basically my position but it can be a little extreme. Here are the situations where it might be OK to buy a house even when you have a pile of student loans:

  1. Someone is willing to give you the money for the down payment as a gift. My first choice in this situation would be to say, “Hey, thanks for the offer. Wanna

    pay off my student loans instead and then I’ll start saving for a down payment on my own?!”

  2. You have only federal loans and a very secure government job that qualifies you for the 10-year loan forgiveness program. Be careful with this one. I don’t like this plan if you have a job at a small non-profit because you could lose the job and lose your eligibility for loan forgiveness.
  3. The home you’re buying is extremely cheap and in a market where owning is much, much cheaper than renting, e.g. a $5,000 foreclosure in Flint, Michigan. But if you’re looking at a $200,000 house, you could probably find a cheap rental for less and use the extra money toward the student loans.

In most situations, adding a mortgage to a $75,000 student loan pile will simply add too much risk, stress, and uncertainty to your life — especially when you experience a job loss, illness, or other unexpected minor financial crisis that happens to almost all people at some point in their lives.

With any luck, the couple writing to Ms. Weston will have a hard time finding a lender willing to write a mortgage with that high of a debt-to-income ratio. If not, we may have the seeds of the next financial crisis.

Source: business.time.com

Category: Credit

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