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A home? a Master's? both?

Question: My son wants to buy a home and get his masters degree in the next five years. He is single and in his early 30s. He has excellent credit, very little debt, earns about $80K gross a year, and has cash for a 20% down payment. He has been with his current job for less than two years and is going to school part-time. If he gets laid off in this economy, he will have trouble paying his mortgage but it will put him back into school full-time and get him through his degree quicker. He is making a career change with the Master's degree program, which will take 2 years if full time and will leave him with $20K in student loans. When he graduates, he will have to look for a job in another field with a starting salary that is lower than his current job.

What suggestions do you have for him in terms of timing of his home purchase and education vis-à-vis the economy and his personal circumstances? I had suggested that he postpone his career change until the economy rebounds, but these days you can't convince kids to hold down unsatisfying jobs just for the sake of income and financial stability. Thank you. Ellie, Fitchburg, MA

Answer: Your son is making a big investment in his new career. He knows he'll probably graduate with student loans to repay, and he'll end up with a lower paying job once he has his Master's in hand. The return on investment comes from entry into a career he will enjoy and higher pay as he gains experience in his new field. He's making a big investment in his future.

I would advise against making an additional investment in a home. Sure, home prices look increasingly attractive. But he will be creating a high-risk personal balance sheet if he goes into debt to buy a home and takes on debt to get an advanced degree. He might come out okay if everything goes well. But the unexpected always happens--another bear market? a spike in interest rates?--sometimes on the upside and sometimes on the downside. He'll be at risk with all that debt if it's the latter.

He can always buy a home when he's embarked on his new career. Instead of using his savings for a 20% down payment, I'd use the money to reduce or even eliminate any student loans. He could also tap into that savings to help fund his career shift once he reenters the job market. I'd encourage him to invest in his career now, and buy a home later on.

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