"I'm justified in wanting to buy a home sooner than later": Anxious to buy a house with $65,000 in debt and $20,000 down payment gift. Should I prioritize paying off debt or jump into homeownership?

Yo Money Minder,

I’m feeling like houses just keep getting more expensive, and I’m getting impatient with how the housing market is going.

I’m 24 and so is my wife. We’re living in a MCOL area and aiming to buy a house around $300,000, which is doable here. Our household income is $120,000 gross. We’ve got an emergency fund of $15,000 in a HYSA, and retirement accounts totaling $30,000.

The tough part is our debt. It adds up to $65,000, with $50,000 in student loans at an average 5% and the rest in a car loan at 6%. We’ve already shaved off $25,000 from our debt in the last few years and want to keep that ball rolling. Recently, my wife’s amazing grandparents gave us $20,000 from investments they started when my wife was born, and that’s what we plan to use as our down payment on a home.

So, what’s the deal? Should I stick it out and focus on paying off debt, or is it cool for me to want to jump into home ownership sooner rather than later?

Later,
Hopeful Homeowner

Response from THE MONEY MINDER:

Hello There,

Congratulations on making progress on reducing your debt and receiving a generous gift from your wife’s grandparents! It’s clear that you are committed to improving your financial situation and working towards your goal of homeownership. However, given the amount of debt you still have and your current financial standing, it may be more beneficial to continue focusing on paying off your debt before jumping into homeownership.

With $65,000 in debt, including student loans and a car loan, and a household income of $120,000, it’s important to consider the impact that carrying this debt could have on your ability to manage a mortgage and other expenses that come with homeownership. While the $20,000 gift could serve as a down payment, taking on a mortgage with existing debt could put a strain on your finances and potentially hinder your ability to save for the future.

One practical approach could be to continue aggressively paying down your debts while also saving for a home. By tackling your student loans and car loan first, you can significantly reduce your overall debt burden and put yourself in a stronger financial position to buy a home. Additionally, continue building up your emergency fund and retirement savings to ensure you have a solid financial foundation before taking on a mortgage.

While it may be tempting to rush into homeownership, taking the time to address your debt and strengthen your financial situation will ultimately benefit you in the long run. Patience and diligence in managing your finances now will set you up for success in achieving your goal of owning a home in the future.

Best of luck on your financial journey, and remember, THE MONEY MINDER is here to guide you along the way.