As has been previously discussed on this website, it can be extremely difficult to work toward a variety of financial goals while paying off student loans. Indeed, student debt limits the amount of resources borrowers can devote to certain financial objectives, since student debt consumes cash that might be dedicated to other goals. Even though it might be advantageous to make certain financial decisions, like buying a home, it can be difficult to save extra money while paying off student loans. However, in certain situations, it might make sense to divert money away from paying off student debt so that sufficient cash is available for a down payment on a property.
During my student debt repayment saga, I did not devote much money toward financial objectives other than paying off my student loans. Whenever I had extra cash, I almost immediately devoted this money to student debt, since I wanted to minimize the amount of interest that was accruing on my student loans. As a result, I never seriously considered buying a home while I was paying off my student debt.
I knew that in order to purchase a property, I would likely have to save tens of thousands of dollars for a down payment. In addition, I would also have to spend thousands of dollars on closing costs. Furthermore, I knew that my student debt limited the amount of money I could borrow for a mortgage, and my student loans could also affect the terms I might receive on a mortgage as well. As a result, I reasoned that it did not make sense for me to buy a home while I was paying off my student loans.
However, rent in the New York City area is not cheap. During my student debt repayment saga, I did not have a relative I could live with, so I needed to devote a large percentage of my income toward housing costs each month. In total, I paid close to six figures in rent and other housing costs during the 46 months it took me to completely pay off my student loans. Although the state I live in allows taxpayers to deduct a modest amount of rent from state taxes, there are no other significant financial advantages to paying rent. If I owned a property, I could have put the money I would otherwise be using for rent toward building equity, and I wish I had purchased a property sooner to avoid the waste of paying rent.
There are many other advantages of home ownership that I missed out on by focusing my financial resources on paying off student loans. Federal tax laws allow individuals to deduct a certain amount of state and local taxes on their federal tax returns, so some of the property taxes I would have paid if I owned a home would have been tax-deductible. In addition, federal tax laws allow individuals to deduct mortgage interest on most mortgages, so I would have had this advantage as well. Since I was making up to $40,000 a year through side-hustles during my student loan repayment saga, these tax deductions could have covered most of the income I earned from part-time work! All told, there are many benefits I missed out on by devoting all of my money toward student loans rather than purchasing a property.
Currently, I am in the middle of buying a condo, and the process is revealing to me how painless purchasing a property can be. I am also realizing how misguided I was to not consider buying a home sooner. Many lenders allow borrowers to put ten percent or less down for a property, and some institutions will even cover private mortgage insurance for borrowers who do this. Also, buying a property is not as mystifying as I had previously believed, and if you are careful about costs, you do not need to spend a fortune on closing expenses. All told, if I could go back and redo parts of my student debt repayment saga, I would have purchased a property sooner.
During my student debt repayment saga, I had $90,000 of high interest student loans. Even though it is advantageous to own property for all the reasons I mentioned above, I would have still paid off this debt before buying a home.
After paying off this high-interest debt, I would have only paid the minimum amounts due on all of my remaining loans. I would have then devoted any cash I had from my main job toward saving for a down payment. In addition, I would have also used the money I generated from the part-time gigs and saving strategies I already mentioned on this website toward a down payment. Once I bought a property, I could continue paying down my student loans, and buying a home would have only delayed me from paying off my student loans by a year or two. However, I would have realized all of the benefits of home ownership that I mentioned above.
There are definitely some people who would not benefit from buying a property and should simply use any extra cash to pay off student loans. Indeed, if your credit is poor, you are unsure where you want to live, or if renting is more preferable to you, then it might not make sense to save money for a down payment.
However, everyone with student loans should seriously consider saving money to purchase a property. Of course, do not default on any loans, and always pay at least the minimum amounts due on your student debt. However, if you can delay the satisfaction of paying off your student loans for a few years, using extra cash to buy a home can make great financial sense.