Mortgage Before Student Loans Are Paid Off?

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MJR84
Posts: 8
Joined: Sat Sep 02, 2017 11:04 am

Mortgage Before Student Loans Are Paid Off?

Post by MJR84 » Sun Oct 29, 2017 1:10 pm

I'm a relatively recent law school graduate working at a big law firm. I've got a pretty healthy amount of law school debt (low $100ks), but, fortunately, the interest rate is pretty good (just under 3.5%), and, between my wife and me, our household income far exceeds my total debt. Young associates tend not to last forever at big firms, so, realistically, I figure I should plan on having no more than three more years in my current job. Once I leave, there is a very good chance my income will drop considerably.

My wife and I are currently trying to assess whether it's smart to purchase an affordable condo now.

The pros to buying soon, as we see them, are: (1) we might have a child in the next few years, and so we'll need a two-bedroom place, which would be expensive to rent; (2) buying now means we could spend a few years in our condo-- and, thus, hit the "break-even point"--by the time I potentially switch jobs, compared to if we purchased in, say, two years; (3) mortgage interest deduction; (4) PITI calculators suggest condos in our preferred price range don't cost much more per month than a one-bedroom apartment in our current market; (5) I've read some banks offer PMI-free mortgages with little money down for JDs like me.

The cons are: (1) I already have a lot of law school debt, and it's scary to add more debt; (2) it feels unwise to hoard money for a down payment rather than paying off law school debt; (3) owning property involves the risk of having to shell out money for unexpected and potentially costly repairs; (4) any mortgage we agree to now would have to work a few years in the future when my income may be lower, and that adds an additional level of guesswork into the equation.

Do people think we should consider buying?

runner540
Posts: 401
Joined: Sun Feb 26, 2017 5:43 pm

Re: Mortgage Before Student Loans Are Paid Off?

Post by runner540 » Sun Oct 29, 2017 3:55 pm

Very wise of you to be aware that the high income may not last long. Are you and your spouse maxing out all available tax advantaged accounts? That is what I would focus on before buying home. At big-law income levels, it will save you a bundle in taxes to max your 401k's, HSAs, backdoor Roth IRA, etc. (You can edit your post to add other information about your financial situation).

Given that you are expecting changes in job and family in the next few years, I would NOT buy yet. Nothing in your post jumped out that you and spouse really want to own a home. It sounded like you're trying to talk yourselves into it, or want to make sure it's ok to keep renting. No need to tie yourself down to a house unless you really want to, AND have a good feel for your budget (lower paying jobs, one or both spouses going part time when a baby comes, child care, etc.).

When you are doing rent vs buy analysis, you should be comparing comparable properties in size, quality and location (don't compare renting a 1-BR downtown with buying a 2 BR condo in a suburb). I couldn't tell from your post what you are comparing. The size of dwelling is one choice; don't conflate it with whether to rent or buy. Make sure to include maintenance expenses on top of PITI. Consider that flexibility of renting has value and may be worth paying for. Whatever you decide, avoid the 0% or very low down payment mortgages: you will be underwater the day you move in, and really be stuck if the housing market stumbles even a little.

Olemiss540
Posts: 188
Joined: Fri Aug 18, 2017 8:46 pm

Re: Mortgage Before Student Loans Are Paid Off?

Post by Olemiss540 » Mon Oct 30, 2017 7:12 am

In your situation, I would try everything in my power to maintain low expenses while HOARDING investments/paying down debt. I would aim to first maximize tax preferred retirement/HSA accounts and then wipe the debt out! I see no reason to purchase until after your debt is wiped out.

The reasoning is that with a very real possibility that your income may substantially decrease in the near future, you will be able to ease into a lower paying role with less stress and purchase a place once settled without monthly obligations to debtors as a consideration.

Stay focused and wait until you have a good idea of future income and maybe have a child or two before you make the jump to homeownership. Focus on you career and your wife! Enjoy flexibility and low stress for as long as possible, knowing that finances are the cause of over 50% of divorces.....

260chrisb
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Joined: Wed Apr 28, 2010 7:26 pm

Re: Mortgage Before Student Loans Are Paid Off?

Post by 260chrisb » Mon Oct 30, 2017 7:29 am

I don't understand why a younger person would only last 3 years at a large firm nor do I understand why it's a given you will make less money if you leave said large firm. Couldn't you go to another large firm if that's where the money is? I think the cons you listed make your decision. I wouldn't buy anything at this point especially if it adds to your current debt load. Seems to me the thing to do would be to see how the next three years work out (you will still be young) while you pay off your current loan debt regardless of the interest rate and buy something in a few years.

alfaspider
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Joined: Wed Sep 09, 2015 4:44 pm

Re: Mortgage Before Student Loans Are Paid Off?

Post by alfaspider » Mon Oct 30, 2017 7:40 am

260chrisb wrote:
Mon Oct 30, 2017 7:29 am
I don't understand why a younger person would only last 3 years at a large firm nor do I understand why it's a given you will make less money if you leave said large firm. Couldn't you go to another large firm if that's where the money is? I think the cons you listed make your decision. I wouldn't buy anything at this point especially if it adds to your current debt load. Seems to me the thing to do would be to see how the next three years work out (you will still be young) while you pay off your current loan debt regardless of the interest rate and buy something in a few years.
Most large law firms operate on an aggressive "up or out" system. Associates are usually either asked to leave, or cry "uncle" from the long hours and high stress within 5 years. You may be able to switch firms, but the environments are similar. There are remunerative exit options, but many do not pay quite so well (large law firms currrently start at $180k to start and are over $300k by year 7).

For what it's worth, I didn't even think about buying a house until I was ensconced in an in-house job with better job security. A friend of mine who worked at a big firm bought a condo and got the boot less than 6 months after he closed. Frankly, I don't the loans are the primary issue- its' the lack of job security.

Leemiller
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Joined: Sat Jun 01, 2013 12:42 pm

Re: Mortgage Before Student Loans Are Paid Off?

Post by Leemiller » Mon Oct 30, 2017 8:05 am

I wouldn’t buy a property for a child that isn’t here yet. You just don’t know the timing, and while I hope everything goes smoothly, sometimes it doesn’t. Also, I’m not crazy about a starter condo when the goal is a SFH. I’ve also only met one person who was happy to have bought a condo, and they bought decades ago.

My husband and I are both attorneys, and we didn’t buy until after having a child. We also bought a place that either of our incomes could have supported if needed. Having money and flexibility allows you to make better choices and keeps you from having a desperate, I need this job vibe. If I was you I’d pile cash, throw big payments at the student loan, get marketable skills, and network, network and network.

MJR84
Posts: 8
Joined: Sat Sep 02, 2017 11:04 am

Re: Mortgage Before Student Loans Are Paid Off?

Post by MJR84 » Wed Nov 15, 2017 10:16 pm

A belated thanks to everyone for their thoughts.

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