Pay off loans or more down payment

[mrsdoe]

we are considering moving and buying a new house. I have about 100k in student loans. Most are federal, but one is private. Interest rates vary but I have a couple 5-7% totalling about $60k.

New house would be about 600k. We could pay 20% down payment on the new house and continue paying my loans like I've always been. Or we could pay off 60k in loans (freeing up about $600 in monthly payments) and put 10% down on the house. We would either do an 80-10-10 or pay pmi. This would be a long term house (hopefully until kids are grown).

I haven't had a lot of luck finding out about what rates the 10% home equity or piggy back loans would be. Or what pmi is. Conforming loans in our county are 517k, so we would be conforming if we put down 120k. However, I know people who have bought under the local conforming rate but still took out 2 mortgages because anything over 417 is still considered a high balance loan even if it's conforming. If we were going to be in that boat anyways w 20% down would it make sense to just do 10% down and get rid of the student loans?

We can't deduct our student loan interest anymore and from my understanding we are could still deduct pmi or the extra 10% mortgage loan. I'm not sure how much longer the loans are but they were 20-30 year repayment terms and I've been paying about 7 years. They just won't go away!

Credit scores are 800+ 2 steady jobs, efund and closing costs set aside separately. Thanks!

[Deleted]

In that case, I'd be inclined to pay off any loans for which you can no longer deduct the interest. So throw $60k at the non tax-deductible student loans and borrow an additional $60knon the house.

But perhaps in not thinking it through clearly.

[aurora]

If it were me, I would wait to make a decision on this one until I had all of the rates for both mortgage options because it sounds like it could be close.

I recently ran some numbers with a friend who is buying a house and it looks like it will probably be cheaper for her to get a regular mortgage for $417k (at the lowest interest rate), then a HEL or HELOC for the remaining ~$25k they need rather than a "high conforming" loan of $442 (below the limit in our area). In both her case and yours, it all depends on what exactly that HEL/HELOC rate is.

[mrsdoe]

I *think* they are about 4.99%. Ive found a couple quotes on line (nothing specific for us we aren't ready to apply) and my friends is about 4.75. Similar incomes and home prices.

So not a huge difference in interest but we can't decuct any sl interest due to income.

[mrsdoe]

And I know the rule is generally don't use secured debt to pay off unsecured debt and put your house on the line. But I'm just thinking lots of people put 10% down on a house anyways and the ability to deduct the interest would be great. I've been paying 7-9k in interest alone and can't deduct any, and even if our income was low enough to qualify the max is 2500.

[polarbearfans]

Jul 2, 2016 15:28:41 GMT -5 @juno said:

Do they even allow piggybacks anymore? When we refi'd, all the lenders said those weren't a thing anymore. We were stuck paying PMI until we could finally pull ourselves out from underwater. PMI for us on a ~$400K loan was $150 a month, but I'm not sure how much that varies.

I don't think the secured vs. unsecured debt rule applies with student loans. Student loans can't be discharged in bankruptcy like consumer debt. So I think of them as pretty secured by the skin on your back. They are going to get that money one way or another. More important to me is that the debt would die with you while a mortgage would not. But if you are generally healthy, I probably wouldn't want to bank on dropping dead LOL.

I'd wait and see what the PMI is and/or the piggyback rate before making a decision. Then I'd whatever the numbers told me to do.

We used a heloc to get up to 20% when buying our house. It was suggested by our lender when our house didn't appraise high enough (no comps in our area)

[mrsdoe]

I know 2 people who did an 80-10-10 (not sure if it's heloc or hel) and one that did 20% w one loan up to the conforming limit and the remainder of the 20% on a second loan. Only close enough to one for ask for details and her h handled most of it unfortunately.

Maybe it's availability is a regional thing? Housing costs are pretty high near me.

[mrsdoe]

@juno I agree with your rationale. But it's counter to most recommendations. I think the most they can ever garnish is 10%? That's still my full monthly payment, so it's not like that gets me anywhere.

[simpsongal]

Per OPs, I'd probably let the rates decide. Our PMI was nearly $600/mo and we had to do a pricey refi to drop it after 6 months (once we hit 20% equity).

Another thought - Have you looked into refinancing some of your SLs? If they're all federal, you might want to stick w/them b/c they're discharged in death and the freeze options are probably better in case you have money problems. But you can find fixed rates for as low as 4.5% these days. I had a NJ loan that was 6.9% and I refied to 4.5% fixed.

[mrsdoe]

Jul 5, 2016 10:09:55 GMT -5 simpsongal said:

Per OPs, I'd probably let the rates decide. Our PMI was nearly $600/mo and we had to do a pricey refi to drop it after 6 months (once we hit 20% equity).

Another thought - Have you looked into refinancing some of your SLs? If they're all federal, you might want to stick w/them b/c they're discharged in death and the freeze options are probably better in case you have money problems. But you can find fixed rates for as low as 4.5% these days. I had a NJ loan that was 6.9% and I refied to 4.5% fixed.

All but about $23k are Federal. Anything I've seen with a refi would be a weighted average. But I haven't explored that in about a year so maybe there are new options. If I did that I think I would be better to wait until we bought just due to having a 100k credit inquiry no?

[simpsongal]

mrsdoe, Definitely explore it, but yeah, I'm not sure about proceeding before buying a house. I wouldn't want that to ding your credit.

[polarbearfans]

Jul 2, 2016 15:33:33 GMT -5 @juno said:

Jul 2, 2016 15:32:16 GMT -5 polarbearfans said:

We used a heloc to get up to 20% when buying our house. It was suggested by our lender when our house didn't appraise high enough (no comps in our area)

We did too in 2007 (well, a HEL, not a LOC).  In 2013 the said no way  

We did ours in 2015. Maybe things have changed again? I feel in some ways it is getting a bit easier to get loans :/

[thejen626]

PMI sucks. We have been throwing away $400 per month for the last 2.5 years because we put down less than 20%. We thought we'd be able to write it off on our taxes...nope. Anyway, we are refi'ing now that we have more equity, going from 4.25% down to 3 ish%, and getting rid of the PMI. For comparison, our house was $380k.