Hi Money Minder,
I’m starting a new job soon that comes with a substantial sign-on bonus of $15,000. I’m a 29-year-old software developer making $155,000 a year. I have an emergency fund of $17,000 and $138,000 in retirement accounts. I save 15% of my income each month. I also have an auto loan of $23,800 with a 7.69% interest rate and a student loan of $28,000 with a 3.25% interest rate.
In the future, I want to buy a house with my girlfriend within the next two years. I’m looking at houses in the $300,000-$600,000 range, so I’d need to save up $60,000 to $120,000 for a 20% down payment. I currently save around $600 a month outside of my retirement savings. The $15,000 sign-on bonus could give me a head start. I’m not sure how much I need to save up exactly, but some people have told me that putting down less than 20% is okay. My girlfriend has also been through bankruptcy once, so if we buy a house together, she has programs to help us get better rates.
On a more immediate note, my car loan is a bit upside down. I bought it during the high car prices post-pandemic. I could use the $15,000 to pay off the car loan and then focus on saving for a home.
Any advice on what I should do?
Seeking Advice
Response from THE MONEY MINDER:
Hello There,
Congratulations on the new job and the significant sign-on bonus! It sounds like you have a solid financial foundation with a good emergency fund and substantial retirement savings for your age. Based on the information provided, it seems like you have two main priorities to consider: paying off your high-interest auto loan and saving for a potential future home purchase.
In terms of the auto loan, tackling that high interest rate should be a priority. Putting a portion of the $15,000 sign-on bonus towards paying down the principal of the loan can help reduce the amount of interest you’ll pay over time. By making it a priority to pay off the auto loan sooner rather than later, you can free up more monthly cash flow towards saving for your future home purchase.
When it comes to saving for a house, it’s great that you already have a savings goal in mind. While saving 20% for a down payment is ideal to avoid private mortgage insurance (PMI), some lenders do offer options for less than 20% down. However, keep in mind that a larger down payment can lead to lower monthly mortgage payments and overall interest costs. It’s also important to factor in additional costs like closing costs and maintenance expenses when budgeting for a home purchase.
Considering your girlfriend’s financial history and the potential for lower interest rates through her programs, it might be beneficial to explore your options together and see what makes the most sense for your future plans. Sit down and have an open conversation about your financial goals, timelines, and how you can work together towards achieving them.
Ultimately, a practical approach would be to allocate a portion of the sign-on bonus towards paying off your auto loan to reduce that high-interest debt. Then, continue saving towards your future home purchase goal, whether that be with your girlfriend or on your own. Remember to budget for all potential expenses associated with buying a home and plan accordingly.
All the best from THE MONEY MINDER.
