09 Mar Your First Home is a Path to Financial Independence
Latest posts by Grant Sabatier (see all)
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- Your First Home is a Path to Financial Independence - March 9, 2018
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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 in 2018, 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 accessibility 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 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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