Use savings to pay off debt or buy a multi-family home??

Question

Hello everyone,

For those that may have more experience than me, this might be an obvious question, but I have been wrestling with it for a while so here it goes. My wife an I have always talked about buying a home, but have always fallen short of saving for one. We are now in the process of saving for one again, but we have about $100,000 worth fo debt together that we have to pay between students loans and personal. We also rent an apt for $1,600 and I have two children. My question is the following: Would it be wiser to pay off our debt first before purchasing a home considering that a bank may not give us a loan due to our debt or should we attempt to use our savings to the buy a home? I would like to begin real estate on the right foot and be in it for the long haul and not just short term. Anyone with experience please chime in. Thank you

Nathan Gesner · Answer

Pay off the debt. You'll probably get the majority of users telling you to invest first and then pay off the loans later but that's a bad view of financial stability. You need a solid foundation before you start taking risks with investments.

When the feces strikes the rotating oscillator and you realize the wisdom of this advice, you can buy me a round.

Cassi Justiz · Answer

If you haven't listed to BP Money or read Set for Life by Scott Trench, you should check them out. First thing I would do is to look at your spending and see if you can cut anything out. Then I would try to live as cheaply as you can while you pay off any high interest or consumer debt. You don't want to be in a position where you have to choose whether to make the house payment or the debt payment that month. Once you get all of the consumer debt/high interest debt paid off, then go talk to a lender and see what you could qualify for. If you can qualify for a multifamily/house hack at that point, then I would consider it.

But I wouldn't consider getting into a multifamily property until you are in a strong financial position with minimal low interest debt and plenty of reserves.

Craig Jeppesen · Answer

@Gustavo Rodriguez Pay off the debt. I would go into super cheap mode and put every penny to get out if debt as soon as you can. Sacrifice now for a better tomorrow. Sell or downsize a car if it helps. The only thing that you could do is purchase an inexpensive duplex with a low down payment and live in one side and rent out the other. This would free up your $1600 or so in rent to help pay the debt down sooner.

Joseph Walsh · Answer

Not enough information, however, knowing what I know now, I would go back 25 years and pay off all my debt in a very "FIRE" mentality mode (even if I am not FIRE, but for the debt). I would of lived like a poor college student for 2 more years, paid off all my debt, and maxed a Roth those two years. What I have learned later in life is that I have missed on a LOT of opportunities to get more income options because my finances weren't shored up. And now being on the good side of financial mess(normally), I have been able to realize a lot more opportunities. That said, the best thing I ever did was trade in my rent check for a mortgage check, and that was when I was just starting to get my ship in shape, it actually helped me get on the right path. If your credit is decent,even with the debt, and you can get an FHA into a multi-family, that can help you like it did me, get on to the correct path. Of course, the biggest risk is if you have to move anytime soon.

Dickie Mcfarland · Answer

Buy a multi family and house hack it as much as possible

Rent out every room in your unit except the one you live in

Now you have whatever you were saving every month plus the 1600

Use that monthly surplus to debt snowball

Sam Shueh · Answer

Check with a lender first.

Justin Delahoyde · Answer

Here is what my wife and I did. I had ~70k in student loans and part of a car loan. We chose a USDA rural loan for 0% down and got into a house that was almost the same price as our rent. You could do a USDA if you are able to choose one outside a a metro area; they have a good map on the web. I believe they also have a rural multifamily option, ask a lender. Or you could go the FHA loan thats 3.5% down. that you can choose multifamily in as well. then you could Househack either one and possibly zero yourself out. i think in the zero or low money down book Brandon has there are better descriptions of these programs. i looked at it in my library.

Theresa Harris · Answer

If you were talking about buying a rental, the question would be what is the interest rate of the debt vs mortgage. For a personal residence, having less debt is better. Start by paying down the debt with the highest interest rates first. I wouldn't wait until you've paid off all of the debt, but definitely pay it down and make sure you keep some aside for emergencies.

Jacob Sampson · Answer

Pay off the debt. The process and necessary self discipline to pay off the debt will be well worth it. Plus, we are closer to the top of a market than a bottom so you might as well wait for a dip over the next couple of years.

Gustavo Rodriguez · Answer

Thank you @Nathan G. & @Craig Jeppesen.

To me this also made the most sense since I am pretty sure banks will see us as a liability. You also cannot plan enough for rainy days. I will need to work harder and earning more and spending less.

Use savings to pay off debt or buy a multi-family home??

Use savings to pay off debt or buy a multi-family home??

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