Law School + Mortgage

Discuss various money matters here. Loans (federal and private), scholarships, lottery winnings, or other school finance related information and queries.
nicdmx
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Law School + Mortgage

Postby nicdmx » Sun Nov 29, 2009 6:27 pm

Anybody here looking at financing law school and continuing to pay a mortgage?
I think I could escape with a pretty low amount of debt if it wasn't for the fact that I have a mortgage. I'm slightly underwater, but could make up the difference with money in my 401k, however I can't stomach selling and losing all of the money I've put in to the house. I will likely turn it in to a rental property, but then I have to figure out where to store all of my accumulated furniture, sporting goods, etc.

twopoodles
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Re: Law School + Mortgage

Postby twopoodles » Sun Nov 29, 2009 9:36 pm

I have a mortgage and have little hope of selling. There have been houses for sale on my street for literally two years. My plan is to attend a school within driving distance and work PT. I do not live alone, but have been the "breadwinner" so it will be interesting to say the least. Rental property sounds like a good option...sell your crap. :)

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Zojirushi
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Re: Law School + Mortgage

Postby Zojirushi » Sun Nov 29, 2009 9:52 pm

Renting, even with a slight loss every month, is a better deal than selling at a loss + swallowing closing costs, at least around here.

FreshPrince
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Re: Law School + Mortgage

Postby FreshPrince » Tue Dec 22, 2009 10:26 pm

I know this thread is a little old but maybe someone is still following. I, too, am considering law school + mortgage. I am the bread winner currently and my spouse only makes about 1/3 of our monthly expenses. I'm looking at being approximately $115k (if I use the $25k I have in my401k) in debt for a top 35 school if we stay in the house. Of course I am hoping for merit scholarship to lower that even more. We are both young, no kids. We absolutley love our house and will stay in this area after law school. I am thinking I will make about $85k a year out of school. Any thoughts on whether cashing out a $25k 401k is a bad idea or whether $115k is too much debt if you make $85k a year? FWIW that's about $25k more than I make now.

interestedbyestander
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Re: Law School + Mortgage

Postby interestedbyestander » Fri Jan 01, 2010 5:31 pm

FreshPrince wrote:I know this thread is a little old but maybe someone is still following. I, too, am considering law school + mortgage. I am the bread winner currently and my spouse only makes about 1/3 of our monthly expenses. I'm looking at being approximately $115k (if I use the $25k I have in my401k) in debt for a top 35 school if we stay in the house. Of course I am hoping for merit scholarship to lower that even more. We are both young, no kids. We absolutley love our house and will stay in this area after law school. I am thinking I will make about $85k a year out of school. Any thoughts on whether cashing out a $25k 401k is a bad idea or whether $115k is too much debt if you make $85k a year? FWIW that's about $25k more than I make now.


A starting salary of $85k a year from a top 35 school seems very optimistic, though certainly possible, but nothing I would want to assume in my debt repayment calculations.

FreshPrince
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Re: Law School + Mortgage

Postby FreshPrince » Fri Jan 01, 2010 5:54 pm

interestedbyestander wrote:
FreshPrince wrote:I know this thread is a little old but maybe someone is still following. I, too, am considering law school + mortgage. I am the bread winner currently and my spouse only makes about 1/3 of our monthly expenses. I'm looking at being approximately $115k (if I use the $25k I have in my401k) in debt for a top 35 school if we stay in the house. Of course I am hoping for merit scholarship to lower that even more. We are both young, no kids. We absolutley love our house and will stay in this area after law school. I am thinking I will make about $85k a year out of school. Any thoughts on whether cashing out a $25k 401k is a bad idea or whether $115k is too much debt if you make $85k a year? FWIW that's about $25k more than I make now.


A starting salary of $85k a year from a top 35 school seems very optimistic, though certainly possible, but nothing I would want to assume in my debt repayment calculations.


I am just using that because it is the average starting salary for all reporting graduates from the school I am looking at (regardless of the type of law they choose to go into). Their average for private practice is $104,000. I know their 2009 and 2010 class probably won't see these salaries. I certainly wouldn't think I would be getting any less than $75000 a year but that's just me doing obsessive research, conducting informational interviews, and creating numerous financial spreadsheets to calm my nerves about the debt that I am about to incur.

interestedbyestander
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Re: Law School + Mortgage

Postby interestedbyestander » Fri Jan 01, 2010 6:05 pm

FreshPrince wrote:
interestedbyestander wrote:
FreshPrince wrote:I know this thread is a little old but maybe someone is still following. I, too, am considering law school + mortgage. I am the bread winner currently and my spouse only makes about 1/3 of our monthly expenses. I'm looking at being approximately $115k (if I use the $25k I have in my401k) in debt for a top 35 school if we stay in the house. Of course I am hoping for merit scholarship to lower that even more. We are both young, no kids. We absolutley love our house and will stay in this area after law school. I am thinking I will make about $85k a year out of school. Any thoughts on whether cashing out a $25k 401k is a bad idea or whether $115k is too much debt if you make $85k a year? FWIW that's about $25k more than I make now.


A starting salary of $85k a year from a top 35 school seems very optimistic, though certainly possible, but nothing I would want to assume in my debt repayment calculations.


I am just using that because it is the average starting salary for all reporting graduates from the school I am looking at (regardless of the type of law they choose to go into). Their average for private practice is $104,000. I know their 2009 and 2010 class probably won't see these salaries. I certainly wouldn't think I would be getting any less than $75000 a year but that's just me doing obsessive research, conducting informational interviews, and creating numerous financial spreadsheets to calm my nerves about the debt that I am about to incur.


True, 2009 salaries are going to be lower that previous year's. But you also have to be careful about averages ... law salaries are bi-modal where a small % of graduates from Top 35 schools get the $160,000 (or about) BigLaw salaries and a much larger % get less than $60,000, and few getting anything in between. Many grads do not have jobs at all following graduation.

My only point is when considering repayment possibilities I personally would be very conservative in my assumptions.

Good luck.

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chadwick218
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Re: Law School + Mortgage

Postby chadwick218 » Fri Jan 01, 2010 6:07 pm

Had I been unable to rent my home last June, I would not have been able to attend law school this fall. There was no way that I could take on law school and a $3,000 monthly mortgage payment at the same time. The only day that was happier than getting into my targeted school was the day that I rented my house for the next 3 years!

FreshPrince
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Re: Law School + Mortgage

Postby FreshPrince » Sun Jan 03, 2010 5:08 pm

chadwick218 wrote:Had I been unable to rent my home last June, I would not have been able to attend law school this fall. There was no way that I could take on law school and a $3,000 monthly mortgage payment at the same time. The only day that was happier than getting into my targeted school was the day that I rented my house for the next 3 years!


Wow! You were able to rent your house for $3K a month? Kudos to you.

My mortgage is much less but I still don't think I could rent it out for the full cost of the monthly mortgage. I would probably end up paying about $700 out of pocket every month to supplement the mortgage.

GTE
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Re: Law School + Mortgage

Postby GTE » Sat Jan 09, 2010 1:03 pm

Has anyone thought of taking out a home equity loan or HELOC after law school to pay off their school debt? I am going to attend school part-time (evening) while working full-time to keep my loans under control… My plan is to graduate law school with less than 50k in debt….

bahama
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Re: Law School + Mortgage

Postby bahama » Sat Jan 09, 2010 1:29 pm

Sure... if anyone has any home equity left. Are banks even doing HELOC/Home Equity loan without substantial equity remaining in the property after the loan? I thought most banks want you to have 10-20% equity remaining AFTER the loan to protect them against further price drops or you deciding to take the home equity cash and then walk away from the house.

If you can do it, it's a great idea if you can get a lower interest rate on the home equity. One thing to watch out for is most HELOCs are adjustable rate, while most student debt is fixed. Interest rates are almost certainly going to go up from where they are now, so can you handle the HELOC payment if the interest rate rises significantly??? It may be hard to find a fixed rate home equity that beats 6.8% fixed stafford student loans. HELOC isn't going to help you on taxes since cash out loans aren't tax dedictible, but neither are student loans after you get above a certain income threshold.

Anonymous Loser
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Re: Law School + Mortgage

Postby Anonymous Loser » Sat Jan 09, 2010 1:55 pm

GTE wrote:Has anyone thought of taking out a home equity loan or HELOC after law school to pay off their school debt? I am going to attend school part-time (evening) while working full-time to keep my loans under control… My plan is to graduate law school with less than 50k in debt….


I set up a HELOC prior to attending law school for this very purpose, but am uncertain if I'll actually utilize it. It's nice to have options, however.

bahama wrote:HELOC isn't going to help you on taxes since cash out loans aren't tax dedictible, but neither are student loans after you get above a certain income threshold.


While there are certain circumstances under which HELOC interest cannot be used to offset tax liability, HELOC interest can be used to reduce tax liability for many borrowers.

UCInfo
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Re: Law School + Mortgage

Postby UCInfo » Sat Jan 09, 2010 2:16 pm

Seems like your decision comes down to whether you have enough equity and you can get a fixed home equity rate lower than the Stafford unsubsidized 6.8 percent or PLUS 8.5 percent.

If my home had enough equity to qualify for a substantial equity loan, I would sell, cash out and pay off tuition/loan debt. It's cheaper than paying interest. I realize there are reasons why you may not want to do this, such as you need to live in your home and/or you believe your home value will appreciate at a faster rate than the loan interest you accumulate.

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scribelaw
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Re: Law School + Mortgage

Postby scribelaw » Sat Jan 09, 2010 2:21 pm

I'm in a similar spot...Unless the market bounces back so I can break even this summer (now slightly under water), I'm going to have to rent it out at a few hundred dollars monthly loss and hope I can sell in summer 2011. The awesome tax break and the fact that I'm paying down principal makes it come out to a ~wash, but I'd rather not have the stress.

UCInfo
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Re: Law School + Mortgage

Postby UCInfo » Sat Jan 09, 2010 2:28 pm

I'm planning to move across the country for law school. We're not underwater, but our equity is below what we paid as a down payment. Would love for a market spike, but I don't see it happening unless inflation sets in and the regional market clears out all the foreclosures. We can probably rent it out for about $300/month below we pay for the mortgage+taxes+insurance+utilities, and it might be a wash after landlord deductions. But I'm also contemplating selling before school just to not deal with the hassle.

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SamSeaborn2016
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Re: Law School + Mortgage

Postby SamSeaborn2016 » Sat Jan 09, 2010 2:33 pm

I'm in a similar situation. Unfortunately I bought a house right as everything spiked in 2006/2007. Up side is that we put a big chunk down and my mortgage payment each month is fairly small (only around 1k) and I split it with my ex. Down side is that my property is in another state so I pay rent as well where I am living. As it is, I have worked out my budget so I could scratch by while in school.

If all goes according to plan, my ex and her new husband are moving back to the property and will be refinancing the house into their names around March or April. Even if they don't, they are taking over the payments in full and I will just stay in contact with the mortgage co. to make sure they are being made timely and not hurting my credit. That will cut my monthly costs considerably.

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Drake014
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Re: Law School + Mortgage

Postby Drake014 » Sat Jan 09, 2010 2:35 pm

Before law school, I was a real estate broker who worked with short sales and foreclosures. My advice:

If you have equity:
1. If you can rent it out and break even or better, you should probably keep it. Most markets have hit bottom. Even if they do go a little lower, you're still not tied down to the house because you could always move and manage a rental property from wherever you live in the future.
2. If you are taking a loss when renting it out, sell it. Property values may enjoy a small spike, but they aren't going to rise substantially in most areas any time soon. If you're going to law school, you probably want to feel free in making your choice for jobs afterwards. Having a liability like a house makes you feel stuck wherever its at

If you're upside down:
Short sell it.

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SamSeaborn2016
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Re: Law School + Mortgage

Postby SamSeaborn2016 » Sat Jan 09, 2010 3:24 pm

Drake014 wrote:Before law school, I was a real estate broker who worked with short sales and foreclosures. My advice:

If you have equity:
1. If you can rent it out and break even or better, you should probably keep it. Most markets have hit bottom. Even if they do go a little lower, you're still not tied down to the house because you could always move and manage a rental property from wherever you live in the future.
2. If you are taking a loss when renting it out, sell it. Property values may enjoy a small spike, but they aren't going to rise substantially in most areas any time soon. If you're going to law school, you probably want to feel free in making your choice for jobs afterwards. Having a liability like a house makes you feel stuck wherever its at

If you're upside down:
Short sell it.


It is my understanding that if one short sells a home, it will make it incredibly difficult to qualify for private student loans (read PLUS loans). While stafford loans don't have much in the way of lending requirements, PLUS loans require that you do not have negative credit. This would include collections, defaults, charge-offs (meaning the lender took a loss), tax liens and foreclosures.


FWIW: I work in consumer lending.
Last edited by SamSeaborn2016 on Sat Jan 09, 2010 4:25 pm, edited 1 time in total.

nicdmx
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Re: Law School + Mortgage

Postby nicdmx » Sat Jan 09, 2010 3:48 pm

Drake014 wrote:Before law school, I was a real estate broker who worked with short sales and foreclosures. My advice:

If you have equity:
1. If you can rent it out and break even or better, you should probably keep it. Most markets have hit bottom. Even if they do go a little lower, you're still not tied down to the house because you could always move and manage a rental property from wherever you live in the future.
2. If you are taking a loss when renting it out, sell it. Property values may enjoy a small spike, but they aren't going to rise substantially in most areas any time soon. If you're going to law school, you probably want to feel free in making your choice for jobs afterwards. Having a liability like a house makes you feel stuck wherever its at

If you're upside down:
Short sell it.



Short sell is a big credit hit, although not as big as a foerclosure or bankruptcy. I'm going to try to rent mine out for about 800 less than the mortgage. Assuming some rental income I should be able to get through law school with ~80k of debt. I have a pretty decent chuck of money in my 401k as a safety net so I think I will be ok....hoping Harvard will be worth it.

I thought I read somewhere that you can use 401k funds penalty free to pay for education expenses. Anyone else heard of this?

Anonymous Loser
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Re: Law School + Mortgage

Postby Anonymous Loser » Sat Jan 09, 2010 4:21 pm

IRA accounts may allow penalty-free withdrawals for qualified educational expenses (this is how I paid my UG tuition not covered by scholarship), but I seem to recall 401k's being more limited in this respect. It might be worth talking with a financial advisor of some sort to see if a rollover might be a good option for you (as well as to establish what limitations there may be on 401k withdrawals).

I had considered dumping my IRA accounts in order to pay the portion of my law school expenses not covered by scholarship, but am reluctant to do so in the event I end up taking a position that would qualify for the federal LRAP program. Plus, I would be absorbing a huge loss if I were to sell now, a loss which likely offsets any interest savings on loans over the long run.

UCInfo
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Re: Law School + Mortgage

Postby UCInfo » Sat Jan 09, 2010 7:52 pm

You can't do a straight withdrawal from 401k without paying a penalty, even for education. Since you'd presumably be leaving your employer to go to school, you can roll your 401k into an IRA once you leave. Once the rollover is complete, I believe you can use the IRA money without paying the 10 percent penalty (though you will have to pay income tax on the withdrawal).

In my case, I would probably wait until my 2L year to tap the IRA money because as a student, I would have no earned income that year and be in a lower tax bracket.

Drake -- Thanks for the advice on the home sale vs. rent equation. I'm going to have to research whether the landlord deductions can make the rental pan out. I agree that there likely won't be a huge enough appreciation in the next three years that would justify absorbing a loss as a landlord.




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