Impish Posted April 20, 2012 Share Posted April 20, 2012 Ok... Say you had a choice. You could either: Pay off all your debt, w/a small amt left over or Put some $ on all your debt, but leave enough so that you had a downpayment on a house pretty much covered. WWYD? (Poll to follow) Quote Link to comment Share on other sites More sharing options...
Lily_Grace Posted April 20, 2012 Share Posted April 20, 2012 I'd pay off my debt and save up for a house. Fact is, that's what we are doing right now. I don't feel comfortable incurring more debt when we had some already on our shoulders. Quote Link to comment Share on other sites More sharing options...
SKL Posted April 20, 2012 Share Posted April 20, 2012 I'd have to know more, but in general, buying a house saves money in the long run. You can deduct the mortgage interest and property taxes, for one thing. And usually a mortgage payment is less than a rental payment for the same accommodations. It offers some financial benefits down the road as well. I would make a down-payment on a house but still pay down as much debt as possible afterwards. Quote Link to comment Share on other sites More sharing options...
Parrothead Posted April 20, 2012 Share Posted April 20, 2012 In this economy I'd pay all debt off before incurring any more. If one has no debt it shouldn't take long to save enough for a down payment for a house within one's means. Quote Link to comment Share on other sites More sharing options...
KS_ Posted April 20, 2012 Share Posted April 20, 2012 It would depend on the situation, but if it's between paying off debt and staying in the mobile home or not paying it off and getting a house, I'd go for the house. Sanity is worth more than paying off the debt now, IMO. Quote Link to comment Share on other sites More sharing options...
MrsBear Posted April 20, 2012 Share Posted April 20, 2012 It really depends on how each impacts where you'll live for the time it'll take to save the money again. If you pay off the debts, how long will it take you to replenish the savings to have enough for a down payment for a purchase in the future? If instead you use the money toward the down payment and continue paying the debt each month, how much more is your mortgage P&I + taxes and insurance? Is it less each month than the rent? If there is a difference that's less, how long will it take to pay off the debt with that difference? If you're renting (and live in the US), is the mortgage interest deduction going to help you lower your tax burden and allow you to pay the debt off faster with more money in your pocket at the end of the year? I lean toward suggesting paying off the debt and using the money you're used to paying to put toward a down payment for the future. But, if buying the house means a lower overall monthly payment for the mortgage, taxes and insurance, it may actually be a better financial move to buy the house and use the difference to pay the debt off in the new house with your lower monthly payment difference and the tax advantage. This is one of those situations where it'll help to do all the math on the different scenarios to see which one is best for your monthly budget. Quote Link to comment Share on other sites More sharing options...
Truscifi Posted April 20, 2012 Share Posted April 20, 2012 Normally I would say pay off debt, then save for the down payment. But if you are actively looking for a house I would keep enough for a down payment. It can be very hard to get a mortgage these days if you don't have a down payment, at least where I live. Quote Link to comment Share on other sites More sharing options...
JumpyTheFrog Posted April 20, 2012 Share Posted April 20, 2012 I would have a 6 (or maybe in this economy, a 9) month emergency fund first, before paying off the debt. Quote Link to comment Share on other sites More sharing options...
Tammyla Posted April 20, 2012 Share Posted April 20, 2012 :iagree: Normally I would say pay off debt, then save for the down payment. But if you are actively looking for a house I would keep enough for a down payment. It can be very hard to get a mortgage these days if you don't have a down payment, at least where I live. Quote Link to comment Share on other sites More sharing options...
Danestress Posted April 20, 2012 Share Posted April 20, 2012 And what is the mortgage rate you can get? Here in the states you are likely to have much higher interet rate on a credit card. However, many people have 1% or 1.9% rates on cars. So that would be a big factor. I would ve paying off any 18% cards as a priority. I might keep a low interest car loan though. Also, having just moved and started a new job, I would be cautious. What if you find things are not working out? If the selling market is strong where you are, that would be a good thing - makes it easier to move. Quote Link to comment Share on other sites More sharing options...
Impish Posted April 20, 2012 Author Share Posted April 20, 2012 Would it change any votes if it was 'found' money (ie income tax return) as opposed to careful saving? Quote Link to comment Share on other sites More sharing options...
JumpyTheFrog Posted April 20, 2012 Share Posted April 20, 2012 It wouldn't change my vote. I have a hard time envisioning when someone would regret having a big emergency fund. Quote Link to comment Share on other sites More sharing options...
MrsBear Posted April 20, 2012 Share Posted April 20, 2012 Wouldn't change my post.....however, I'd say definitely change those W4's if you're getting a seriously hefty refund, the government doesn't pay interest on the extra money you give them each pay period! Quote Link to comment Share on other sites More sharing options...
Parrothead Posted April 20, 2012 Share Posted April 20, 2012 (edited) No, I don't think so. As I said earlier if you have no debt it is easier to save. If rent and utilities are 1/4 of your earnings and you set aside 1/4 for incidentals, gas and groceries then you're left with 1/2 of your earnings to be put into an interest bearing savings to be eventually put into a money market savings (higher interest rates in the MMS). Then your next bit of found money can go toward the savings. You would then buy your house within 24 months still debt free except for the mortgage. That is a nice place to be. Many people struggle to get there. It is a buyers market and will be for some time yet. Unless "the" house is on the market at present, I'd settle in and prepare to wait for it soon. If it makes you feel better you are not alone. We will be debt free in October. I'm planning on waiting and saving through the winter then start looking for "the" house in the spring. If it comes up too quickly I'll just have to wait and watch. Edited April 20, 2012 by Parrothead Quote Link to comment Share on other sites More sharing options...
Jennifer in MI Posted April 20, 2012 Share Posted April 20, 2012 Would it change any votes if it was 'found' money (ie income tax return) as opposed to careful saving? Questions that come to mind (you don't have to answer them): 1. Do you have a plan in mind either way? If you buy a house with the money do you have a plan for paying down the debt? If you pay down the debt, do you have a plan for saving for a down payment? 2. Do you have anything additional in savings? I am always amazed at how much home ownership costs! You don't want to buy the house and then need a repair that puts you MORE into debt. 3. How much time would it take you to save toward a down payment? If it's years and years and years, I'd say buy the house now - setting some aside so you have an emergency fund. AND, plan on how to get out of debt. Those are my thoughts. Quote Link to comment Share on other sites More sharing options...
cjzimmer1 Posted April 20, 2012 Share Posted April 20, 2012 I'd pay off the debt first. Having gone through 3 extended periods of unemployment in the last 12 years, we know how easily our financial picture can change. While right now it might seem economically feasible to continue paying off debts and support a house, there is no guarantee that next month things will look so good. Getting the debts paid off gives you a lot more flexibility if your income suddenly changes. Also there are a lot of hidden expenses that come with a a first time home purchase. Depending on what is left with the house things that may need to be considered are curtains, shower curtains, lawn mower, snow blower (or at the very minimum a shovel), paint and associated supplies(while this can be done later, it is much easier before you put all your stuff in the space), appliances, any repair work that may need to be done, shelving etc. So the initial start up costs may be quite high depending on what you already own and what comes with the house. So even if you pursue the house option now, make sure you set aside extra money just to cover some of the extras you will invariabley encounter. Quote Link to comment Share on other sites More sharing options...
EJCMom Posted April 20, 2012 Share Posted April 20, 2012 I would pay off the debt first. Quote Link to comment Share on other sites More sharing options...
OLG Posted April 20, 2012 Share Posted April 20, 2012 Pay off the debt and then adjust your witholdings so you aren't loaning a large amount to the government each year. If you adjust witholdings you can bank that money with each pay check and save towards the downpayment. As another said, I'd look at the interest % on any loans and pay down the highest % first. Those at a really low %, would slide. Being debt free is liberating and in this economy and with a recent move, it could be your wisest choice. Quote Link to comment Share on other sites More sharing options...
Impish Posted April 20, 2012 Author Share Posted April 20, 2012 Excellent questions, thanks! Gets me thinking... Questions that come to mind (you don't have to answer them): 1. Do you have a plan in mind either way? If you buy a house with the money do you have a plan for paying down the debt? If you pay down the debt, do you have a plan for saving for a down payment? I do have a plan either way. It's more a matter of, we plan to apply for a mortgage when Wolf's probation is over in 6 mths, and I'm unsure if I could come up w/the same amt in that time. 2. Do you have anything additional in savings? I am always amazed at how much home ownership costs! You don't want to buy the house and then need a repair that puts you MORE into debt. Yes, I'm not completely wiping myself out either way. 3. How much time would it take you to save toward a down payment? If it's years and years and years, I'd say buy the house now - setting some aside so you have an emergency fund. AND, plan on how to get out of debt. I'm not sure how long it might take, part of the situation is ongoing wrangling w/WCB. My income *should* be going up again, but I don't know when that would happen, or how long it would last. Those are my thoughts. Chucki, if I stayed in this mobile for 2 yrs, I'd lose my mind :lol: Quote Link to comment Share on other sites More sharing options...
MrsBear Posted April 20, 2012 Share Posted April 20, 2012 On second thought, I now lean much more toward paying off the debt. If you have really low interest debt (like 1% interest), that I'd say not to pay off since it's basically free money, paying it off early doesn't really save you money and leaves you cash poor. But, after thinking about this and that it's "found money" I think it's better to pay off the debt and develop a plan on how to save more in the future. I'd still suggest adjusting the W4's so you're not giving money away each pay check. Quote Link to comment Share on other sites More sharing options...
Impish Posted April 20, 2012 Author Share Posted April 20, 2012 It's not actually income tax...We have something in Canada called 'Child Tax Benefit' that is based on income, that you receive once a month. We just got a lump sum b/c they hadn't paid for Boo since he was born. So, it's not anything to do w/Wolf's deductions at all. Quote Link to comment Share on other sites More sharing options...
meggie Posted April 20, 2012 Share Posted April 20, 2012 I would pay off the debt and then save for a down payment. Houses cost a lot in maintenance and I would want my net worth to be as big as possible before taking that on. Quote Link to comment Share on other sites More sharing options...
ezrabean2005 Posted April 20, 2012 Share Posted April 20, 2012 Debt first. Quote Link to comment Share on other sites More sharing options...
Parrothead Posted April 20, 2012 Share Posted April 20, 2012 Excellent questions, thanks! Gets me thinking... Chucki, if I stayed in this mobile for 2 yrs, I'd lose my mind :lol: Find another rental now that you are in the area. Things should start coming available in the spring/summer months. Watch the paper. Quote Link to comment Share on other sites More sharing options...
Impish Posted April 20, 2012 Author Share Posted April 20, 2012 Find another rental now that you are in the area. Things should start coming available in the spring/summer months. Watch the paper. Problems we have are: 1) All small towns around here. Not much available for rent at any time. 2) We have a large dog. That wipes out at least 90% of what's available 3) Incurring more moving costs. 4) Credit rating takes a hit when you change addresses. Moving yet again btwn now and buying a house would be a negative on our credit report. Quote Link to comment Share on other sites More sharing options...
DusksAngel Posted April 20, 2012 Share Posted April 20, 2012 I would pay off debt, mainly because I feel that it would give you more options. You said there would be some money left over to put into savings, plus you'd have the money that you were paying on the debts. You could check into investments other than savings where you could potentially earn even more money, especially as you have 6 months til his probation ends. Another plus to waiting is you'd have a much better idea of the area and where you'd like to live. Quote Link to comment Share on other sites More sharing options...
vonfirmath Posted April 20, 2012 Share Posted April 20, 2012 (edited) I'd have to know more, but in general, buying a house saves money in the long run. You can deduct the mortgage interest and property taxes, for one thing. And usually a mortgage payment is less than a rental payment for the same accommodations. It offers some financial benefits down the road as well. I would make a down-payment on a house but still pay down as much debt as possible afterwards. You can deduct the mortgage interest and property taxes IF they are bigger than your standard deduction. I get my standard deduction now without having to pay those. The size of house we are looking at, the amount we are looking to put down... the interest+property taxes may or may not be bigger than the standard deduction we already get. Right now that standard deduction is free money. I wouldn't buy a house just for the interest and property tax deduction. PS But in your situation, with how crazy you are going in your mobile home (I understand. We're renting a mobile home and its a big impetus to us looking to buy now too!) I'd be more tempted to keep the money for the downpayment. we used our IRS refund to pay off our debt (baby hospital bills). And I don't know if we'd make the same decision if we knew then what we know now--that we want to buy. Because we have the money for the downpayment, etc. But its going to be tight and totally wipe our savings. So if anything goes wrong before we build it up we will be going right back into debt anyway! With your current level of debt, can you qualify for a big enough loan with this debt to buy the houses you are looking at? Will having this money for downpayment mean 1) Not having to pay PMI or 2) whether you can buy at all? Edited April 20, 2012 by vonfirmath Quote Link to comment Share on other sites More sharing options...
vonfirmath Posted April 20, 2012 Share Posted April 20, 2012 4) Credit rating takes a hit when you change addresses. Moving yet again btwn now and buying a house would be a negative on our credit report. Wow. That's a difference between US and Canada. We've moved 3 times in the last 4 years and it hasn't affected our credit at all (just my sanity) Quote Link to comment Share on other sites More sharing options...
SKL Posted April 20, 2012 Share Posted April 20, 2012 You can deduct the mortgage interest and property taxes IF they are bigger than your standard deduction. I get my standard deduction now without having to pay those. The size of house we are looking at, the amount we are looking to put down... the interest+property taxes may or may not be bigger than the standard deduction we already get. Right now that standard deduction is free money. I wouldn't buy a house just for the interest and property tax deduction. Actually, state and local income taxes, certain medical and job-related expenses, and charitable donations (including in-kind castoffs and church offerings) are also included when you compare itemized deductions to standard deduction. All together, they may or may not be bigger than the standard deduction. Mine have always been bigger since I bought a house, even when my income was below average. That said, I was talking from a US perspective. I have no idea if that has any relevance in Canada. The bigger reason I am biased toward buying a house is that unlike renting, at least some of the money you pay on your house becomes an asset. Plus, I just like the freedom of being the queen of my own castle (however humble it may be). Obviously, the cash flow analysis (after tax) has to support the decision. Quote Link to comment Share on other sites More sharing options...
Tap Posted April 20, 2012 Share Posted April 20, 2012 Pay off interest bearing debt over what your savings account gains, then Save for emergency fund, then save for house. Quote Link to comment Share on other sites More sharing options...
susankenny Posted April 20, 2012 Share Posted April 20, 2012 We would definitely pay off all debt first. Susan Quote Link to comment Share on other sites More sharing options...
Susan C. Posted April 20, 2012 Share Posted April 20, 2012 I would keep the down payment. Then as you get more money, pay off the debt. Also I would keep an emergency fund. We had a deal years ago where dh lost his job, we sold our house, moved to another state, and rented an apartment. Then he lost that job. I refused to touch the house money. If I had, we wouldn't have been able to buy the house we are in. We incurred debt during that time as well, but paid it off later. Quote Link to comment Share on other sites More sharing options...
CroppinIt Posted April 20, 2012 Share Posted April 20, 2012 It would depend on several factors. 1. How much interest are you paying on the debt? How long will it take you to pay that off? 2. How soon will you need a downpayment? If you need it right away (in the next year or so), I'd keep that back. If not, and if you're paying anything at all on the debt, I'd pay off more debt. As a general rule, I like Dave Ramsey's idea of have a thousand in the bank, then pay off debt, then have a longer emergency fund before hitting the house. However, if you're needing a downpayment faster, I'd move that priority up without question. Quote Link to comment Share on other sites More sharing options...
Night Elf Posted April 20, 2012 Share Posted April 20, 2012 I'd hold back the down payment. I know not having debt is very important, but living in a place that feels like a home for your family is also very important. If I was very unhappy where I lived and knew I had the means to get into a better position, I would do it. Quote Link to comment Share on other sites More sharing options...
LibraryLover Posted April 20, 2012 Share Posted April 20, 2012 (edited) Are housing prices currently 'low' where you are? What's the forecast for recovery if so? Buying a house in a down time is a better than buying a house in a boom. There are some deals out there (at least where I live). I have an neighbor who bought her home a number of years ago for over 700k. She died recently, and the house was sold for under 500k. The new owners are not underwater, in fact the house is on the books as being worth almost 600k. Which means, even in this economy, they have equity. Buying a house is a bunisness transaction. Sometimes these transaction works in your favor, sometimes you lose your shirt. What is the pattern of housing costs in your area? Edited April 20, 2012 by LibraryLover Quote Link to comment Share on other sites More sharing options...
Parrothead Posted April 20, 2012 Share Posted April 20, 2012 Problems we have are:1) All small towns around here. Not much available for rent at any time. 2) We have a large dog. That wipes out at least 90% of what's available 3) Incurring more moving costs. 4) Credit rating takes a hit when you change addresses. Moving yet again btwn now and buying a house would be a negative on our credit report. Wow! As much as we move I'm sure glad #4 isn't part of credit ratings in the US. As for the rest it sounds as if you really just want to buy. Which is fine. It may not be the smartest move, but if that is what will make you happy in the long run go for it. Quote Link to comment Share on other sites More sharing options...
Annie G Posted April 20, 2012 Share Posted April 20, 2012 The payment you got was a lump sum that covered November until now? So six months, right? And now you'll be getting the monthly payments, correct? So either way you have been living without this money since November. If you pay off all debt, it sounds like you could save the payments and have that down payment in six months. If you saved out the down payment and put the future payments toward debt, you'd have that paid off in six months, correct? This assumes you have been living without this money and will continue to receive it. Are those conditions correct? Not living in Canada, I'm not sure I have this right. Quote Link to comment Share on other sites More sharing options...
momofsbandeg Posted April 20, 2012 Share Posted April 20, 2012 I'd save some for a down payment. But, if you are looking down the road, I'd pay off all the debt and start taking all the money you were using toward those debts and put it in a fund for a down payment on down the road. There is a LOT of peace in being debt free. Personally, I'd rather be debt free. It takes the noose off your neck and frees up lots of other options down the road. You might qualify for a better interest rate for your house note being debt free. That would save more money down the road. My vote: debt free. Quote Link to comment Share on other sites More sharing options...
Lolly Posted April 20, 2012 Share Posted April 20, 2012 What I would do... 1. pay off debt. 2. SAVE the money each month that you have just received in a lump sum. That is going to be HARD when they are handing you the check each month month. As soon as that check comes in, put that $ into a special savings account. 3. Build an emergency fund (if you don't already have one/if you do add to it by a couple of months). With a house, you WILL have a lot more emergencies than you are used to coming up. 4. Save a down payment. Owning a house is not a money saver. Quote Link to comment Share on other sites More sharing options...
3browneyedboys4me Posted April 20, 2012 Share Posted April 20, 2012 I'd pay off all the debt. You should be able to save quick enough, and you should be able to find an affordable house in this market. Quote Link to comment Share on other sites More sharing options...
Venia Posted April 20, 2012 Share Posted April 20, 2012 Currently being in the thick of mortgage approval, I would caution against paying *off* debt versus paying *down* debt and having some saved up for a down payment. You must carry balances on at least 3 active trade lines (CCs, Student loan,mortgage, auto loan or personal loan) to have a decent credit score and qualify for the best home loan rates. Lenders want to see 30% or less utilization on your debts, not 0%. The magic number is somewhere between 3-9% for most folks. Lowering your minimum monthly payments to your debts is also a huge benefit for qualifying (called Debt-to-income ratio). To summarize, personally I would do both. Pay down debts to target levels, put the rest in savings. Then you can maintain those debt levels and put anything left over against your down payment, etc. Don't forget that the down payment is only one chuck of the money you need; there are upfront fees, closing costs, and cash reserves. (and sometimes, not having enough to cover all of that can qualify you for assistance not available to traditional loan seekers.) Quote Link to comment Share on other sites More sharing options...
vonfirmath Posted April 20, 2012 Share Posted April 20, 2012 We have 1 active credit line. don't carry a balance on any (we paid off the personal loan we took out recently with income tax). And our broker is having no problem getting us a loan with excellent interest rates. She said nothing about having a problem. In fact, she said we'd have "No problems" and sent out our pre-approval immediately. Quote Link to comment Share on other sites More sharing options...
Sandra in FL Posted April 20, 2012 Share Posted April 20, 2012 If the debt is credit card debt which has a high interest rate on it, I would pay off the debt first. Then take on a mortgage which would be low these days and which you can deduct the interest off your income tax. Quote Link to comment Share on other sites More sharing options...
CarrieF Posted April 20, 2012 Share Posted April 20, 2012 With rates the way they are I would get the house and commit to continue to pay off the remaining debt, even if it is done slowly over time because of the new house payment. Quote Link to comment Share on other sites More sharing options...
Carpe Posted April 20, 2012 Share Posted April 20, 2012 Actually, state and local income taxes, certain medical and job-related expenses, and charitable donations (including in-kind castoffs and church offerings) are also included when you compare itemized deductions to standard deduction. All together, they may or may not be bigger than the standard deduction. Mine have always been bigger since I bought a house, even when my income was below average. That said, I was talking from a US perspective. I have no idea if that has any relevance in Canada. The bigger reason I am biased toward buying a house is that unlike renting, at least some of the money you pay on your house becomes an asset. Plus, I just like the freedom of being the queen of my own castle (however humble it may be). Obviously, the cash flow analysis (after tax) has to support the decision. Absolutely none. :) Neither mortgage interest nor property taxes are deductible. We have a standard deduction that everyone gets and then deductible things are on top of that value. The payment you got was a lump sum that covered November until now? So six months, right? And now you'll be getting the monthly payments, correct? So either way you have been living without this money since November. If you pay off all debt, it sounds like you could save the payments and have that down payment in six months. If you saved out the down payment and put the future payments toward debt, you'd have that paid off in six months, correct? This assumes you have been living without this money and will continue to receive it. Are those conditions correct? Not living in Canada, I'm not sure I have this right. Yes that's correct. And I think that's the best idea Imp. If possible, of course, I know you just moved so expenses might be very different now. Currently being in the thick of mortgage approval, I would caution against paying *off* debt versus paying *down* debt and having some saved up for a down payment. You must carry balances on at least 3 active trade lines (CCs, Student loan,mortgage, auto loan or personal loan) to have a decent credit score and qualify for the best home loan rates. Lenders want to see 30% or less utilization on your debts, not 0%. The magic number is somewhere between 3-9% for most folks. Lowering your minimum monthly payments to your debts is also a huge benefit for qualifying (called Debt-to-income ratio). This is not true in Canada. 0% is best, assuming there is a credit history. Quote Link to comment Share on other sites More sharing options...
A.Balaban Posted April 20, 2012 Share Posted April 20, 2012 Pay off all debt. Then use money you were spending on debt regularly to start saving up for your downpayment. It's what we are doing. Good luck! Quote Link to comment Share on other sites More sharing options...
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