Should I Pay My Student Loans or Buy My First House?
It's no secret that student loan debt can put a serious damper on your plans for the future, especially when it comes to buying your first home. Some studies even suggest that student loan debt will add an extra five years to the time it will take someone to save for their first home. So, should you focus on student loans and then buy a home? Try to do it at the same time? Focus on the home first? There are plenty of options. Here's what you should be thinking about.
How long will it take to save for the down payment on your first house?
If everything about your financial life stayed exactly the same, how long would it take you to save for a down payment? Let's do the math. The median home price for a first-time buyer in 2017 is $182,500, which means you need to save $36,500 if you want to have a 20% down payment. If you want to buy your home in the next three years, you'll need to be saving 1,014/month. Of course, you could always buy a less expensive home, look into first time home buyer programs, or extend your time frame.
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How long will it take you to pay your student loans?
If you're looking at the same three year period, how long will it take you pay your student loans, and how much will it cost? The average student loan debt is $28,950 at 4.29%. At that rate, you'd need to pay $858.46 per month for three years in order to fully pay them off.
Is it cheaper to rent or buy?
The big question is, will you save money by buying a home. In many places across the country, it's cheaper to pay a mortgage than it is to pay rent. But if you live in a place like San Fransico, that probably isn't the case. Do some research into the cost of owning a home in your area and then use our rent vs. buy calculator to find out which is cheaper. Don't forget to forget to factor in other expenses associated with owning a home, like your homeowner's insurance, emergency maintenance funds, and any HOA fees.
If it's cheaper to own a home with all the associated expenses, then it might be time to start looking into options like an FHA loan or another first time home buyer program. These programs can help you become a homeowner sooner by reducing the amount of money you need for a down payment. If you can afford both the mortgage payment, all associated expenses, and your student loans then it might be time to look into options like an FHA loan.
Other factors to consider
Like any financial decision, buying a home or paying your student loans isn't black or white. Make sure you're also able to save money for your emergency fund, which can cover any major medical bills or other unexpected expenses, and don't forget your retirement savings.
Think it's the right time for you to buy your first home? Check out our guide to buying a home when you have student loan debt.