What's my next step?

If you have no money saved, you're going to find it very hard to buy a house. Besides needing money for the down payment, there are closing costs, you'll almost certainly want to have some cash to spend on furnishings and random things you need for a house that you didn't for an apartment, and you'll also want an emergency fund to cover unexpected repairs.

My suggestion is to (1) reduce your spending; (2) pay off your debts; (3) start saving money for a house. In that order.

-Sandra the cynic

Very good. I might add that it is unlikely you will qualify for any loan when you owe money to the IRS. Paying off that debt should be your priority. In order to do that as quickly as possible, you'll have to reduce your spending.

Elizabeth Richardson

"Sandra Loosemore" wrote snip

Particularly given that the original poster's debt likely will result in an adverse credit score, meaning the original poster will pay a higher mortgage interest rate.

How do you know that? Have you done an analysis of the cost of renting versus the cost of buying? In many cases, renting is a better deal. That goes double right now when most houses are priced far over their real value. This might very well be a good time to rent, and wait for the coming real estate crash to cut house prices down to size for you.

-john-

Not necessarily true. When you buy a home, you become the new landlord. We're getting ready to possibly (unless I can fix it) replace our water softener and it will run $400 - $500. We are prepared to absorb the expense with cash. If you buy with considerable debt, are you prepared to handle the homeowner issues that come up with cash?

I agree completely with previous advice. Pay off the debt, save up a big downpayment to avoid PMI, and have a rainy day fund in place for new water softeners, a furnace, etc., etc.

I don't necessarily agree with all the advice given. I think you need to consider your position carefully. As a practical matter, IF your credit score is good (650s and more), you can get a zero down loan, WITHOUT PMI, with a loan value depending on your debt/income ratio. This used to be fairly straight-forward but don't know if it'll still hold in the rising interest rate climate. Very generally, I do advocate this over saving for a downpayment (but it is also a function of the housing market you're in, and the points below).

You need to figure out how much disposable income you need and live happily. Be generous and budget for treats for yourself. Likewise, save for retirement if you need to. What is left is what you can afford on a house payment (including taxes and insurance).

Then think about whether you'd really want a house and the responsibilities that come with it. This should be your primary reason for buying a house.

What I am getting at is that if you've enough disposable income, and if you're saving adequately for retirement, then I think using all the rest of the money for debt payment is okay, provided the debts are paid towards secured assets like a house (hopefully in an appreciating market).

--Ram

terrapen wrote:

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Terrapen,

I agree generally with what the others have posted, except that you may want to hold off on paying off the student debt. If it's truly a "very low interest" loan, then you ought to save your cash toward a down payment on a home or perhaps some retirement savings in a Roth IRA.

In my experience lenders don't weigh too heavily student debt in qualifying you for a loan. That's not to say, of course, that you yourself shouldn't take it into account when figuring out how large of mortgage you can afford.

good luck,

Tom B.

Chris, explore an FHA loan with your lender.

Rick Wheat