Politicians, administrators, and parents love to criticize younger generations for our “lack of priorities.” Rather than working full-time, saving to buy a home, and purchasing diamond engagement rings, we instead choose to spend our resources on avocado toast, nights out with friends, and entertainment. Right?
Wrong. So very wrong.
In fact, most Millennials would like to purchase home. We would love to have diamond engagement rings, and avocado toast is–to be perfectly honest–incredibly overrated. So, what’s the issue? Why are we broke?
Two words: student debt. You’ve likely read statistics about the crippling debt this generation of Americans is struggling to overcome. High monthly payments and predatory private loan providers prohibit young people from reaching the classical milestones in adult life.
I want to tell you: It is possible to purchase a home with student debt. It may take some financial finagling, but with the right amount of savings and monthly income, it can be done. When lenders evaluate you for a mortgage, they will typically look at four figures: Your income, your savings, your credit score, and your monthly debt-to-income ratio. The last piece illustrates your total financial obligations, which might include anything from car payments and credit card debt to outstanding student loans. Do what you can do pay down or eliminate other forms of debt; you will see an instant improvement in this ratio.
After paying down this debt, lower your monthly student loan payments. Consider refinancing your loans and apply for income-driven repayment plans. Most mortgage lenders won’t mind if your overall student loan debt will increase—they are primarily concerned with your monthly payment obligations. Additionally, do your best to make student loan payments on time to increase your credit score. A great credit score can be more important than significant loan debt.
Finally, save, save, save. Don’t purchase a home until you have enough money saved to cover the down payment and closing costs. These costs might include home inspection, mortgage loan origination fees, mortgage insurance, and homeowner’s insurance. This is the longest part of the process, but with careful planning and budgeting, it can be done within several years.