Wednesday, March 28, 2012

Law School Debt and Owning a Home

I found an interesting article in Bloomberg Business Week regarding law school debt and home ownership.  The gist of the article appears to be that student debt is keeping young professionals from buying a home.  The article quotes Marie Casteel, a University of Cincinnati School of Law graduate, working as a divorce attorney making $45,000 a year.  She is a single mother and has $120,000 in debt that will result in monthly school loan payments of $1,500 per month.  Ms. Casteel is quoted as stating that buying a home is not reasonable given her circumstances because she does not want to incur an additional $100,000 in debt.  

Ms. Casteel's rationale deserves some examination.  Although owning a home through a mortgage does result in debt, she should keep in mind that whether you pay rent or a mortgage payment, you still have to pay to have a roof over your head.  I would advise Ms. Casteel to compare her monthly rent payment to a mortgage payment net of tax.  Rent expense is not tax deductible, but mortgage interest is.  Further, mortgage interest rates are at a historical low, and so are home prices.  Ms. Casteel is not likely to relocate from Cincinnati, making a home investment a prudent choice.  Lastly, if Ms. Casteel is concerned about securing a mortgage, she should look into tax laws allowing her to use certain retirement savings for first-time home buyers.  This would allow her to make a 20 percent deposit on a home priced at around $100,000, which is realistic in Cincinnati, and more likely that a bank would give her a mortgage.

1 comment:

Lumme Pekka said...

They really got a nice law look very good and interesting,nice short article.