Your First Home is a Path to Financial Independence

So many people are telling me they have no interest in buying a home. That it’s just an expensive responsibility and just more debt on top of their student loans. “Why would I buy a home and get tied down, when I can live anywhere,” one reader recently asked me.

I can totally understand that buying a home might seem daunting, expensive, and maybe even completely out of reach. But homeownership is no longer just the American Dream, it can be one of the best investments you’ll ever make.

For some Americans, homeownership can be a way to get ahead. A key financial decision. A path to financial independence.

And it’s never been easier to buy a home.

Debt is one of the biggest obstacles to homeownership

Debt is no joke. But not all debt is created equal. Credit card debt is bad. Student loan debt can be good or bad depending on the value that you got from your education. And a mortgage can actually be good debt. Debt can hold you back for years, but only if you let it.

According to a recent survey conducted by Fannie Mae, 39% of millennials are hoping to pay off debts, with 18% hoping to pay off their student loan debt as their financial resolution this year.

Student loans have not only made it difficult to save money but are also an underlying reason why many potential home buyers choose to rent instead of taking the leap to buy a house.

One of the biggest money mistakes many people make is waiting to invest in a primary residence until they have paid off all of their student loans. This is a massive missed opportunity. And I’m not talking about investing in market speculation, like bitcoin. I mean “invest” in the sense that homeownership can be a holistic investment in your future.

Credit card debt is another beast and should definitely be paid off completely before you invest, but student loan debt, if you have it, is a reality you’ll live with for a number of years.

Why it’s okay to be a homeowner with debt

In my last post, we shed light on the common concern that young investors could never afford the down payment on a home. Although, with access to programs that allow down payments in the 3-5% range, a down payment on a home is significantly more accessible than ever before. So now that you’re aware of these programs, the next step is realizing that you’re not alone.

Let me be clear: it’s okay to be a homeowner who has student debt. It’s normal.

Approximately 44 million Americans are currently paying off their student loans. This commonality has resulted in mortgage investors creating new policies for borrowers with student debt. For example, Fannie Mae offers Student Loan Solutions to lenders, which gives homeowners the opportunity to pay off one or more student loans with a cash-out refinance. In addition, Fannie Mae allows lenders to exclude certain monthly obligations paid by others from the debt-to-income (DTI) ratio, making it more likely for borrowers with student debt to qualify for a mortgage.

These new policies have made reasonable mortgages more attainable, even if you have student loan debt.

Stop renting and start investing

Student loans are an undeniable burden that millions of Americans are currently facing. But with low down payments and flexible mortgage options, homeownership is no longer unachievable for millennials seeking the financial security and perks that come with buying a home.

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  • Comment Author image blank
    Thanks for the post! I graduated college a few years back and have been active in the real estate market since. I think this is a great option for some people, but if you are someone that has a job where career progression = moving this may be a headache if they aren't willing to adapt. Nowadays houses have a wide array of income diversification methods. No longer do you have to go the traditional lease route, you can take advantage of short term rental apps like AirBnB which will largely take away the risk of a singular high transaction cost causing event. Now millennials don't have any more excuses. No more "the house is too big just for me" - okay, you can pay off the mortgage and have an income by hosting your rooms!
  • Comment Author image blank
    "Stop renting and start investing." I can't tell you how many times I've preached this to numerous people who are IMO throwing money out the window by renting. Mortgage rates are crazy low and although the market has regained strength in most areas, purchasing a home that will more than likely appreciate in value over time is a great investment. You'll also be paying off equity in the home as you make those monthly payments, as opposed to paying someone else and gaining only a place to live.
    • Grant Sabatier
      Thanks Robert!
  • Comment Author image blank
    Judging whether you should take on debt should be done on a case by case basis. I don't believe that you should even consider a home loan if you still have a 30k student loan to pay off. If you are nearly finished paying off your student loan then it's probably a reasonable idea to consider a home loan. It's always good to speak to a financial professional about these things however. - Money Professor
    • Grant Sabatier
      Great points Money Professor
  • Comment Author image blank
    Anyone's first home is a memorable and valuable real estate investment. They can build equity in their home, take out a line of credit to start a business and work from home with the potential to become a quiet online millionaire in 5 years time or less like Grant did, and so on. Long story short...there;s nothing like having your own. :-)
    • Grant Sabatier
      Thanks Drew
  • Comment Author image blank
    I agree with this post. If you scrape by as much as you can to buy real estate in your early 20’s, in my opinion you will never regret it. There are a few places I wish I had bought 10 years ago. The rent and real estate in my hometown are only going up. Now I’m 32 and looking at buying a second property. I still believe it is a good investment as long as you can cash flow positively.