Millennials with Student Loans can still Buy Homes
There’s a trend affecting how (and if) millennials become homeowners:
Instead of jumping into marriage, starting families and settling into homeownership, millennials tend to hold off on the decisions that some of their parents and grandparents made early in life.
For many, student loans are a huge debt that can take decades to pay off. This is one of the biggest challenges millennials face today when considering buying a home. The cost of tuition at universities across the country continues to rise as does the cost of living.
As of 2014, it is estimated that U.S. student loan debt is over $1.3 trillion (yes, with a t)—this figure is also on an upward trajectory with no end in sight.
Not to mention... Many millennials prefer to spend money on experiences—i.e.: traveling, attending concerts—rather than material items. These factors coupled with inflation, student loans and other debts leave a large portion of this generation with an unclear future when it comes to owning a home. Plus, since the 2008 housing crisis, qualifying for a home loan has gotten much more difficult. Every few people, especially young adults, are able to save enough for a down-payment.
Where Do I Start?
Here are a few things to consider if you’re unsure about where to begin: Figure out how much you owe on your students loans and other debts. Once you have exact figures, you can begin planning.
“Budget, Budget, Budget”
In 2016, a Pennsylvania couple in their late 20’s purchased their first home in Long Island, NY. Both had more than $50,000 in combined student loans and were unsure if they could afford to become homeowners at all let alone in pricey Suffolk County.
After looking at their finances and working with a financial planner, they managed to put an offer in on a starter home that they sold for a profit just a year later.
“Budget, budget, budget. Everything—groceries, your rent or mortgage, credit cards, the cost of filling up your car, everything. Our biggest debt was our student loans. Find out what your debt-to-income ratio is and adjust accordingly. That’ll definitely help.”
A 2017 National Association of Realtors study discovered that student loan debt typically prevents millennials from buying a home for approximately 7 years.
The study also noted that only 20% of millennials are currently homeowners; meanwhile, the average millennial owes a over $40,000 in student loans while earning a yearly salary of about $39,000.
While the figures can be intimidating, there is help available. A number of programs exist to help Americas reach their goal of home-ownership, including:
FHA Loans can make the loan qualification process easier and lowers the required down-payment from over 10% to around 3% of the loan amount. This lowered up-front cost plus more lenient credit score requirements puts qualifying for a home loan within reach of millions of Americans who would otherwise not be able to qualify.
Student Loan Resources
To better manage your student loan debt, consider:
- Repayment options
- Such as standard repayment
- Over the course of 10 years, you will pay the same amount every month. This decreases the amount of money put towards interest since you’ll pay your debt off in a decade but will come at the cost of a higher monthly payment.
- Or income driven repayment
- With this option, your monthly student loan payment is calculated as a percentage of what you’re earning—basically, your payment is commensurate with your income.
- Beware, though...you will pay a higher interest rate due to the low monthly payment.
- Such as standard repayment
- Loan Consolidation
- The Loan Forgiveness Program