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Author: Leguleius Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 884977  
Subject: Financial Cross-Roads... Need advice Date: 12/27/1999 5:43 PM
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Here's the short version:

I'm right out of professional school. Put myself through, and worked during school, but still have about $65,000 in student loan debt (which I pay out in $475/mo payments), as well as about $4,000 in credit card debt (down from about $8,000 two months ago when I started to become "Foolish" by reading these boards).

I've recently become engaged, and my fiance' and I found out three weeks later that we have a child on the way. (We are overjoyed, although our families wish we hadn't put the "cart before the horse," so to speak). Being a firm believer in LBMM, I saved a great deal on the engagement ring by purchasing it using cash and buying from an acquaintance who is a diamond wholesaler. At any rate, I've still got about $2500 in savings, and my fiance' has $3500, but is herself a student, and will be for the next three years.

We both drive used cars that are paid off in full, and are reasonably cheap to maintain. Her credit is pristine, while my own has one "late-pay" indication from a few years back. Other than a few small store-card debts, we don't have any other pressing obligations.

Right now, we'd like to buy a house. I'm torn, however, as our limited cash situation right now means we'd have to take an 80-20 piggyback loan and pay more interest. Part of me thinks it would be better to my own reserves to pay off the credit card debt (which is currently at 14% interest), and then save for a more substantial down payment in about a year or two. The other part of me is looking at housing in my area, and recognizing that if it keeps appreciating the way it has for the last few years, we'll soon be priced out of the market (housing is going up more than 10% a year). I'm tempted to do anything possible to get into a house at the current market rates (including paying higher interest for low down-payment loans), and then re-fianance once the home has appreciated and/or we've save some more cash.

In the meantime, we want to put ourselves in the best position to care for our child when it arrives. Any advice?
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Author: washu Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31720 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 6:36 PM
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Probably the best you can do for your child is to lead by example. Best wishes with your finances!

Anyway, I know there was a lively conversation of renting vs. buying. Here's the search hit:
http://www.fool.com/search/query.htm?qt=buying+a+house+vs.+renting&Search=Search&go=1&id=1040018003279000&col=boards&source=mfsearch

I also understand student loans are one of the better debt instruments. Here's another search result:
http://www.fool.com/search/query.htm?qt=pay+off+student+loan%3F&Search=Search&go=1&col=boards&source=mfsearch


Washu! ^O^

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Author: UCalgaryGeer Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31721 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 6:38 PM
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Here's my two cents, which probably isn't even worth that (I'm still a student and haven't ever bought a home...) so take it for what it's worth.

The other part of me is looking at housing in my area, and recognizing that if it keeps appreciating the way it has for the last few years, we'll soon be priced out of the market (housing is going up more than 10% a year).

My hometown of Calgary was/is largely based on the oilpatch. (For those of you who aren't Canada-compliant, think of maybe Houston. With an NHL team.) In the late 70's/early 80's, housing was on a tear, with prices shooting through the roof. By the mid 80s, with oil prices slumping, the realty market collapsed to the point where a number of people were simply walking away from their homes -- they were worth less than the remaining mortgage.

As an alternate case study, the 2000 NY Times Almanac (yay for good Xmas gifts!) says that the median price of an existing single-family home in LA in 1985 was $125,200. Five years later, they were worth 69% more, $212,100. However, five years after that, in 1995, the price had dropped 15% to $179,900.

My brief moral? Just a cautionary tale. Even though real estate is generally considered to be a cautious investment, it does go down, and you might not need to be in such a rush after all. Personally, I'd pay the credit cards. Of course, I'm not lucky enough to have either a Mrs. 'Geer or a little 'Geer on the way.

Overall, though, it sounds like you're making some progress, and you're thinking through these matters. Keep up the good work, and listen to the far more seasoned and intelligent posters that will surely dispense the advice as well.

Kevin :)

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Author: Ascaris Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31727 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 7:31 PM
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<My hometown of Calgary was/is largely based on the oilpatch. (For those of you who aren't Canada-compliant, think of maybe Houston. With an NHL team.) In the late 70's/early 80's, housing was on a tear, with prices shooting through the roof. By the mid 80s, with oil prices slumping, the realty market collapsed to the point where a number of people were simply walking away from their homes -- they were worth less than the remaining mortgage.>

Yeah, but don't you wish right now you'd loaded up on those properties back during the slump? Calgary has been on a rip lately from the looks of my last few visits.

Ascaris
(Now, where did that crystal ball go?? I had it here a minute ago...)



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Author: cwbyz Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31729 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 8:12 PM
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Thoughts from an ex-realtor & a new daddy:

With only 6,000 to work with, you will have to ask for sellers help for closing costs but it can be done. You may want to get an adjustable rate with no points to save cash for moving expenses. As for timing, it sounds like you have a lot going on at one time. Wedding, wife school, baby, new house... it all leads up to stress city! Make sure you and your fiance COMMUNICATE throughout the whole ordeal. My advice would be to either act now or wait until the "baby experience" soaks in. At any rate, the first thing you should do is go to a bank & get a pre-approval. They will tell what you can afford & how much it will cost. Depending on those results you may not have many choices left.

Good luck & congratulations...on both topics!

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Author: Leguleius Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31740 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 9:41 PM
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Thanks for the advice. After following the links, reading up, doing some math, and conducting a little soul searching together, I think we've decided to rent for at least another year, and to retire the rest of my credit card debt (as well as an "unconsolidated" private money student loan), before thinking about a house. How's that for a long sentence?

In all seriousness, though, I appreciate the input from the Fools here in the forum. Hopefully, I'll be able to add to the discussion as well.



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Author: solesister Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31743 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 9:51 PM
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"as well as about $4,000 in credit card debt (down from about $8,000 two months ago"

If you were able to pay down $4K in CC debt in four months, why don't you give yourself another 4 months to eliminate it entirely, and another 6 months or so to save up for your down payment? You'll be out of debt and ready to buy a home before the baby is walking.
BTW, congratulations!!!!

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Author: TheBreeze Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31753 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 11:38 PM
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...as well as about $4,000 in credit card debt
... Any advice?


Have you gotten any credit card offers for cards that have a rate around 6.9%? If so, you could call your card company and ask them to reduce your rate. If they won't do so, get the cheaper card and transfer the balance.


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Author: UCalgaryGeer Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31754 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/27/1999 11:50 PM
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Ascaris:
Yeah, but don't you wish right now you'd loaded up on those properties back during the slump? Calgary has been on a rip lately from the looks of my last few visits.

Darn straight Calgary's on a rip. They can't put houses in the ground fast enough. And you bet I wish I'd loaded up on those properties...

... trouble is, I was eight or so. :)


Kevin :)
[Glad I made up for lost time, buying shares of the phone company when I was 13...]

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Author: htsu Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31758 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 1:20 AM
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Congratulations on the baby and the engagement. If I were in your shoes, I would pay off the credit debt IN FULL with both your savings combined. I wouldn't worry too much about the school loan. It probably has a low interest rate. I would go for a Fannie Mae or Freddie Mac loan and put 3% down to get into your house. If you add a monthly payment a year, you can shave off 12 years on a 30 year fixed. Just divide a monthly payment by 12 and add that amount every month. You are in a good position if you only have school loans and a mortgage. You could get the interest on your school loan deducted if you got a line of credit through your lender to pay off your school loan. Check it out and let me know how it works out for ya! God bless.

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Author: luvmylife One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31767 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 7:40 AM
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I'm so glad you decided to wait on the house! I think you have enough going on without having to worry about a house payment and all the related expenses that inevitably come up.

I also think owning a house is good in the long run, even though I've heard all the arguments pro and con that can also justify renting. When you do get ready to buy, consider new housing. You'll have less chance of something major going wrong, and if it does it should be covered by builder warranty in the first year. Don't sign a contract till the end of the month, the sales people have quotas to meet and you'll likely get a better deal. If you can buy the last week in December you'll probably do even better. If you can find a "spec" home that hasn't sold, maybe on a less than perfect lot (which can usually be cured with landscaping) or maybe the floor plan isn't the "model" home put in a lowball offer and see what happens. If you find what you want and they don't seem to budge much on price, try asking for extra "options" (upgraded carpet, more hardwood flooring, ceramic tile, etc) there is more room to negotiate on these items.

Hope this helps and congratulations!

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Author: tamarab One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31771 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 9:02 AM
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First off congratulations. Personally I would payoff the debt and save for a house a couple years down the road. Shop around and rent the least expensive residence you can comfortably live in for the next 2 years. The expense of money and stomach lining of getting an 80-20 piggyback loan would ultimately cost more than waiting and being able to pay a larger down payment without the other debt hanging over you.

Also, besides paying off debt build your emergency fund. Depending on your medical insurance you can end up with 2,000 - 3,000 out of pocket for the pre-natal and delivery on a relatively uncomplicated pregnancy and delivery. (I ended up with 3500 out of pocket and my daughter was in NICU for 5 days) Make sure you have that cushion.

Good Luck
Tamara

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Author: Leguleius Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31777 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 9:56 AM
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"If you were able to pay down $4K in CC debt in four months, why don't you give yourself another 4 months to eliminate it entirely, and another 6 months or so to save up for your down payment?"

Actually, I paid the cards down so much by applying my year-end bonus toward them; selling an old computer; getting reimbursed by my employer for some professional expenses I paid out of pocket a year ago (I'll get taxed on the reimbursement, of course); and diverting a little bit of savings.

About all I can apply toward the cards now is rougthly $500 a month.

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Author: cmerighe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31818 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 2:58 PM
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>Part of me thinks it would be better to my own >reserves to pay off the credit card debt (which is >currently at 14% interest), and then save for a more >substantial down payment in about a year or two.

I was faced with a similar situation when I bought my house. I had to decide whether I would use my savings to pay off my credit card debt, or if I would use it to buy a house (5% down + the damn closing costs). After considering the tax deduction benefit of a mortgage, as well as how fast houses go up in price where I live, I decided that I would be better off buying the house then working on paying my credit card debt. After I bought the house, however, I did not live below my means, and my credit card debt went up to $8,000. Joining fool.com and working on a budget to help me live a more frugal life (the LBYM way of living) have truly helped be in charge of my financial life and future. My credit card debt is down to $1,400 total, and my house has gone up in price. I have paid over $10,000 in interest for my mortgage during 1999. That will be a nice tax break for me. Look into transferring credit card balances from the cards with higher interest rates to lower ones. My $1,400 balance is on a Chase card that is only 2.9% until June. I hope to have paid it off until then!

Since I started living a frugal life and paying off my credit card debt, credit card companies are trying to get me again. The vultures now send me blank checks that I immediately file in the trash can where they belong. I'm saving a good emergency fund so I don't have to use my credit card for anything else.

Good luck!!!

Carlos.


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Author: cmerighe Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31819 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/28/1999 3:04 PM
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>After following the links, reading up, doing some >math, and conducting a little soul searching >together, I think we've decided to rent for at least >another year, and to retire the rest of my credit >card debt (as well as an "unconsolidated" private >money student loan), before thinking about a house.

That is a respectable decision. You will be able to sleep better now that you will owe less anyway. Besides, now you can save the money from the monthly credit card payments and buy a house when you have the funds. I gave 5% only down when I bought my house. I refinanced my mortgage 6 months ago with 6.875%.

Carlos.

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Author: solesister Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31878 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 2:49 AM
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"Since I started living a frugal life and paying off my credit card debt, credit card companies are trying to get me again. The vultures now send me blank checks that I immediately file in the trash can where they belong."

Good advice Carlos! May I add that you should tear 'em in half or shred 'em before y ou file those things -- identity thieves are everywhere!

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Author: pscroggs Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31899 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 11:14 AM
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"In the meantime, we want to put ourselves in the best position to care for our child when it arrives. Any advice?"

HAH! Got a time machine??

ROTFLMAO

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Author: pscroggs Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31900 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 11:17 AM
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Washu wrote: "I also understand student loans are one of the better debt instruments."

Talk about Wise words of the week!

;)

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Author: PattiR Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31917 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 11:59 AM
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Well as an ex-realtor I came across this dilemma often in an appreciating market. I don't know what area of the country you live in, but here's some insight I gleened over the years.

First, you are correct to note the appreciation and it's effect on you by waiting. Please remember, when interest rates fall, house prices increase as a general rule. Don't overbuy!!!! Buy resale, they are a much much much much better value. I can not emphasis this enough. Those new ones look soooooo cute and decorated, but you it will take 7-10 yrs (in the DC market) to gain much appreciation. Remember to look at resales with the eye for what is possible. No house is perfect, even if you build it yourself. You'll always forget something. Don't buy a 2BR condo. Better yet don't buy a condo unless you know you will rent it later on. (This does not apply to empty nesters who have done the house/yard thing)The condo fees, although inclusive of some utilities and taxes, are for the most part expensive and not deductible. Figure out (you can do this online at some mortgage companies sites) what the interest and principal you will be paying. Now remember that interest is deductible. That's like having Uncle Sam make a portion of your house payment. You have to pay rent somewhere right? If you buy, keep all receipts for any improvements you do. When you sell you will add these to your purchase price before you subtract your sales price. This helps w/ any capital gains or rollover requirements.

Look at it this way. You can always change your interest rate as the market changes. You can never change the price you paid for the house. Since you have no control over the cost of housing start looking now. Remember, the difference between need and want. You are old enough not to let your wants hurt you. You can change counter tops, paint, put in new toilets, and carpet for that matter as you can afford it. Point is, once again, don't overbuy! Don't be married to your house.

*Big yards are nice to look at but they take maintanence. Nothing wrong w/them just be aware....

*In a townhouse community the parking is IMPORTANT! You should not have to use the visitor spots for residence parking. Careful w/this one, it can be a killer.

*Those beautiful atrium entrances add plenty to the energy bill.

*There is nothing wrong w/older appliances as long as they work properly. Have the sellers purchase a Homeowners Insurance Policy for you.

*Get a home inspection for your own piece of mind. When the results are in, don't nick pic the sellers.

Here's to happy hunting. Good luck.....this will be a trying and exhausting experience but worth the effort.

Patti

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Author: wlance Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31924 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 12:35 PM
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My husband and I found ourselves in a similar situation about 11 years ago. First of all, realize that you're going to need at least $200 per month (if you're very, very frugal) to feed and clothe a baby -- about $30 per week just for formula (if you go that route) and diapers (maybe more depending on where you live). If you are going to have to pay for child care, that will be a much larger expense. With three children, we were once paying $500/mo. in day care. The cheapest you'll find day care (and cheaper doesn't have to mean worse -- there are some good people who will watch a child for $2/hr -- multiple children) is probably $300/month. But (there's always a bright side) you get about 20% of that back as a tax credit!

Anyway... here's what we did with the housing situation. We bought a small, very modest "starter home" in a working class (but safe) neighborhood. We did have to pay a slightly higher interest rate because we didn't have the full down payment; however, we felt this was much better than renting. As soon as we had enough equity in the house to do so, we refinanced and got a better rate. After a few years, we had built up significant equity (making double payments helps) and were able to purchase a house that cost more than twice as much. We traded up again two years ago and now have a 15-year mortgage at 7.25% on a huge house in the country. We never could have afforded it had we just rented and tried to save money -- we are not that disciplined! And, best of all, we will have our home paid off before our oldest child is out of college. We're looking to retire with no mortgage payment or kids' college bills at age 52.



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Author: ald2kjk Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 31981 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/29/1999 8:17 PM
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Dear Leguleis:

One thing you can do for your child to be that is absolutely free is to have the mother breastfeed. In the course of one year, you will have saved enough to purchase a major appliance and not only that - you will have saved money in doctor bills because breast fed infants tend to be less ill than formula fed infants (these are all facts - look them up at your local leleche league meetings) No, we are not militant breast feeders - but if you want to increase your child's IQ - breastfeed (yep, that's a fact too!) AND, it can be done even if the mom works - But, seriously, breastfeeding my two children has been the most rewarding and enjoyable thing I have ever done, the personal satisfaction is immense and, like the best things in life, it's free.

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Author: utahtea Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 32043 of 884977
Subject: Re: Financial Cross-Roads... Need advice Date: 12/30/1999 12:14 PM
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One thing you can do for your child to be that is absolutely free is to have the mother breastfeed. In the course of one year, you will have saved enough to purchase a major appliance and not only that - you will have saved money in doctor bills because breast fed infants tend to be less ill than formula fed infants (these are all facts - look them up at your local leleche league meetings) No, we are not militant breast feeders - but if you want to increase your child's IQ - breastfeed (yep, that's a fact too!) AND, it can be done even if the mom works - But, seriously, breastfeeding my two children has been the most rewarding and enjoyable thing I have ever done, the personal satisfaction is immense and, like the best things in life, it's free.

I agree with your post 100%. I also would like to add that breast feeding help me lose weight and give me back my waistline quickly :)

Utahtea

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