Q: I am almost 25 and live at home. I make $55,000 a year. I have paid off 1 of my two student loans. My remaining loan is $11,800 at 3.5% through Wells Fargo. I have around $12,500 in savings. I would like to move out and have been searching for townhouses to buy in the $180,000 range with a mortgage rate at 4.5% with a 5% down payment. Should I pay off my student loan in full and look to rent while I save for a home, or should I look to buy and take advantage of low mortgage interest rates with a smaller down payment?
A: Great question, but hard to answer without a little more info on your situation. Based on the metrics you provided below you can certainly afford payments on a 30 year fixed mortgage of 180,000 at 4.5%, but here are a few thoughts…
How long have you been at your job? Are you happy at your job, are you considering a transfer or a move to a different city for a more exciting opportunity?
Are you seriously dating someone or even engaged? If so, does your significant other already own a place? Does she want to move in the near term to a different city! etc?
Point is you are relatively young and while I don’t want to discourage you, I think it’s ok to rent as you figure some of these things out.
If you are going to buy, check re-sales or confirm if their is a HOA that you will be allowed to rent the property if you suddenly need to unload your property but aren’t able to sell at your desired price point.
Buying real estate will without doubt be your largest single investment. Not something you want to jump into without doing a little bit of soul searching first.