Expert: Sharon Huneycutt, Realtor, Associate Broker, GRI, e-PRO - 7/6/2009

Question
Hello Mrs. Huneycutt
I am 23years old, in college, living in California. My parents are selling one of our houses in Europe and they will give me $50k to invest myself.  Due to my poor credit score and $25k in dept, would you say it is a good idea for me to buy a small house?  I am planning on moving out and instead of renting and "throwing away" money, to buy a small house (100-150k)
Would you say it is a better idea to pay off my dept (my dept is 20k on a car loan, and 5k on credit cards) and save the rest of the money until my credit score improves?  Or should i take advantage of this bad economy and buy a house now?  If i was to wait until my credit score improved, i would save money on getting a better loan, but i risk not getting a "bargain" if the prices go back to normal (since it will take 3-5 years for my credit score to improve).  Is buying a house even possible because of my low credit score and if i put over 50% down for the house?
What would you recommend me to do?

Thank you

Answer
There are a lot of factors involved.  You don't say where in California your are?
1. 100-150K in southern California won't buy much of a house. Or probably elsewhere in California either. So you might wind up with a house that would cost you a lot of money just to keep it up.
2. If you are in college now you don't know where you are going to end
up.
3.  Being debt free is an excellent idea and will save you a lot of interest in what is likely to be a very inflationary economy.
4.  Don't pick up our very bad American ideas about debt.  Stay out of debt as much as you can. Failing to do so is what caused the problem we are having.
5. There is no guarantee that the housing market will pick up greatly in the next 3 to 5 years.  Recovery of the housing market is not assured with increasing job losses, increasing taxes, and inflation.
6.  How can you buy a house with a mortgage if you don't have a job to support that mortgage?

So I would advise you to pay off all your current debt, have your parents invest the rest of the money in Europe or Canada, but not in US Dollars since inflation is going to kill the Dollar, wait until you are out of college, know where you are going to live, have a good job, good credit, get a room mate and save more money, and then shop carefully for a house you can easily afford with a good down payment. Good Luck and let me know what happens to you!