Which is the better position- no debt or big down payment?

Question

So Im looking to buy a long term home/townhouse/condo in the nearish future. I have 12-15K in student loan debt. I have enough in savings to pay it off but then I would have much less for a down payment. Id rather wait to pay as my employer is currently paying several hundred per month to help payoff my loans as part of my benefits. So If I wait Ill have to pay less out of pocket because my employer will be paying the bulk of my loans. Id rather do that but I don't want the debt to hurt me buying a home.

Basically, my question is- Is it better to have no debt and a small down payment or some debt and a much larger down payment (10-20K more)?

Basically, my question is- Is it better to have no debt and a small down payment or some debt and a much larger down payment (10-20K more)?

Rodney Sums · Answer

Keep the cash.  Your student loan rates may be low anyway plus your employer is paying toward it.  That's free money.  If you pay it off, it's being paid off with YOUR money.  Right now it's being paid off with someone else's money that you can't get if the loan is paid off.

JD Martin · Answer

10-20k more isn't generally enough to make a difference one way or the other unless you were buying a really cheap property and were on the bubble enough that the lender was going to require more than 25% down or similar. So given the choices you listed, I would pay down the debt.

Andrew Garcia · Answer

Hi @Claire Findley, the student debt will not significantly hurt you unless your debt-to-income ratio is really tight.

If the student loans have a payment reporting, the lender will use that. Otherwise, they will use $60-75 per month as the monthly payment.

As you can see, it will not significantly affect your qualification.

Additionally, you have a great deal with your employer so I would milk that for all it's worth.

Now you just have to decide between putting a larger down payment or saving more money and doing the minimal down payment.

Hope this helps! Let me know if I can be of any assistance.