Financial Dilemma

[Katherine Devitt]

My partner and I are in our late thirties and we are at a cross roads financially. He has 6 more years left to pay off his vehicle at 0% interest, I have 6 more years left on my vehicle at 1% interest. He has zero consumer debt, I have $3,000 left. We both have RRSP's.

Between us we gross $110,000 a year. Both of our jobs are secure, BUT I want to quit mine and go back to school. The program I want to take is 7 months and will cost $8900 (unless I can get some bursaries). I will need to obtain a student line of credit and a student loan in order to pay the bills. I am planning on staying casual where I am currently working so that I can work 1-2x a week while in school.

Currently we are paying a minimal amount for rent until April 1st, then we need to find a new place to live. We found our dream home and are thinking of owning instead of renting.

Is this a wise move if I am planning on going back to school? After I graduate I will earn a little bit less than what I make now, but in the future I will make substantially more.

Your thoughts and opinions would be sooooo appreciated!! Thank you for your time!!

[lizzie bargain]

I think at your ages it is a good time to buy a house. But without knowing what savings you have for a downpayment, school fees and emergency fund or how expensive of a house and mortgage payments you are going to take on it would be hard to advise you. Also don't know how big your car payments are for the next 6 years and are you sure both cars will last as long as the loans? In the meantime it would be good to be starting to save toward a new cars(s). Only you 2 can run the numbers to look at your monthly expenses and see whether there is room in the current and future (reduced for 7 months and the slightly reduced income for some time after classes end) to know whether they will work. It sounds like you have good income potential but I would think you don't want to buy too much house right at this point and to stretch yourself and become house poor just when you are going back to school. As well if your budget is tight is there any potential to share your dream house with a roommate during the early years? Also consider whether children might be in your near future and the added expenses if you plan a family( and possibly reduced income during mat leaves etc). Hope this gives you some food for thought to make the decision that is best for you. Good luck!

[alicia]

I agree with what Lizzie said. There isn't enough info here on the others savings you might have. If you have minimal rent for two more months, I would be chucking the difference between the "real rent" into a savings account. This could serve many purposes - it would make sure you could live in a "real rent" situation, creates a bit buffer if you don't currently have one, or could be used to subsidize part of your tuition/living costs when you go back to school.

Just to add something else, you can borrow against your RRSP to go back to school, similar to the program for a house down-payment. I'm not necessarily advocating it, but it isn't as well-known as the home-down payment, so I just thought I'd point that out.

[kmiecp]

I don't understand why you'll need a student loan for school if you have enough to buy a house... The best advice would be to wait until you have more than 25% for a down payment as well as substantial accessible savings for repairs, taxes etc BEFORE you buy a home...at which poin getting a loan for school would be silly, just save up a couple months till you can pay for school.

[lizzie bargain]

Good points as well by the other posters especially about researching tapping your RRSP's for school/and or home purchase. As well the point about making sure you have enough money in your budget to cover mortgage, taxes, utilities, house maintenance etc. It is not just the mortgage payment! Also we don't know where you live so look carefully at prices in your area-have prices peaked, are they very low or average? For eg if you buy the highest priced house on the street or you buy at the peak of the market your value can drop, and it is possible to end up owing more than the house is worth! If you don't have a large down payment you also have to pay CMHC insurance on your mortgage which adds more money to your monhtly payment. Unless you have significant assets/down payment, the pairing of reduced income with school fees and the costs of homeownership may be too much of a strain on your budget until you have completed school and back up to a full salary. The fact that you currently have an income of 110,000, cheap rent and 2 car loans might suggest you tend to spend most of what you earn? but you do have RRSP's too so I may be way off the mark there. Even though you have found your dream home make sure you make the decision with your head and not just your heart-the numbers must add up. Let us know what you decide to do and how you make it all work.

[MortgageMaster]

Your post did not specify whether buying the house or going back to school comes first. If you buy your house now you can use both your incomes for a mortgage application. If you go back to school first only your partners can be used. By itself it may or may not be enough to support an application.

[beckie.c]

Definitely a personal decision. DH and I waited until I was finished school and had a full time permanent job to purchase a home. Everyone above touched on some really great points... I just have one more question to add. Are you 100% sure that after you finish school, you will want to live in the same place as this dream house is? This career change could lead to exciting opportunities in other areas/cities that you and your partner want to explore and when you have purchased a home your not quite as movable as you are when you are renting.

[brunt]

Is this a wise move if I am planning on going back to school? After I graduate I will earn a little bit less than what I make now, but in the future I will make substantially more.

If you ask me, the key part is in bold above.

If you will indeed be making more money in the future, then that will be a great time to buy a house. Don't listen to the Realtor bullying that "you have to buy now or be priced out forever" rubbish.

Personally, I think that it is a really bad idea to quit a job, go back to school and buy a house at the same time. Quit a job and go back to school is fine, but adding the house into the mix is likely not a great idea.