Buying a home has long been part of the American dream. But it’s a dream that feels out of reach for many young people burdened with student loan debt. In fact, large student loan balances have left many millennials with no choice but to live at home after graduation.
While buying a house may seem impossible with big student loan bills, there are people who’ve managed to do it. Two of them shared their stories with us — along with one borrower who paid off his debt first but wishes he’d purchased sooner.
Choosing an up-and-coming area and focusing on saving
Angalena Malavenda is an online PR specialist at Web Talent Marketing. She purchased her home at 23, despite having more than $45,000 in student loan debt at the time.
“I bought my home in Lancaster, Pennsylvania, in an up-and-coming metropolitan area,” Malavenda said. “I was so sick of paying rent and having nothing to show for it.”
Because she chose an affordable and growing city, Malavenda purchased her home for just $95,000. That price isn’t an option for buyers in more expensive cities, where median home prices can top $1 million. Choosing an affordable locale made it possible for her to buy sooner. Not only were her monthly payments lower, but she needed less money for a down payment and closing costs.
Still, Malavenda had to be careful about budgeting. “I lived very frugally to put back about $5,000 to cover closing costs and anything I would need when I moved. I saved $5,000 in a year,” she said.
Malavenda prioritized saving for her home over paying extra on student loans because she felt she was wasting money on rent. She also knew she’d be able to buy quickly and tackle loan repayment later.
“I paid almost as low as the minimum payment on all of my loans,” she said. “I then put the rest in my savings account.” Focusing all of her efforts on saving for a down payment allowed her to sock away around $400 a month toward her home purchase. She put away more when she earned extra money from side hustles.
She also kept her student loan debt in mind when deciding how much to spend. “Owing student loans caused me to have to look at homes under what I was preapproved for because I knew there would be months I wanted to pay extra on a loan,” she said.
Now, she’s building equity in a home likely to go up in value as Lancaster grows, and she can pay extra on her loans. She can one day use the home as a rental property if she moves for her work or chooses to live in a bigger home after reducing her debt.
Budgeting, finding the right agent, and getting help
J.R. Duren, a personal finance analyst at HighYa, bought a home in Jacksonville, Florida, with his wife when they were expecting their second child. At the time, his student loan balance was $120,000. His wife owed around $9,700. Duren was able to afford his home by taking advantage of the help available to first-time homebuyers.
“We were fortunate enough to meet a real estate agent who told us about a state bond program that paid for all of our closing costs,” Duren said.
“Student loans can be really discouraging and make us feel like we can’t buy a home, but I think what’s missing from this conversation is the concept of state bond programs,” he said. “They’re designed for middle-class families looking for a reasonably priced home, which I think includes a lot of millennials and Gen X grads who have student loan debt.”
Duren and his wife were able to obtain $15,000 in down payment assistance, as well as help with closing costs and discounted rates on private mortgage insurance, which is required if you put down less than 20%. Duren didn’t have to pay back the bonds as long as he stayed in the home for at least five years.
You can find programs in your own state through the Department of Housing and Urban Development, by searching online, or by talking with realtors or mortgage brokers who specialize in helping first-time buyers.
Duren and his wife also worked with a lender offering a mortgage backed by Freddie Mac, a government-sponsored enterprise. Because of that, the lender calculated the couple’s debt-to-income (DTI) ratio based on the monthly payments Duren made on his income-based repayment plan. This was important because the couple would’ve otherwise had too much debt to qualify.
Duren advised budgeting carefully, finding a real estate agent in tune with your needs, and being patient until you find a home you love and can actually afford. “If everything feels forced and it doesn’t sit well with you, take a break from your search,” he said.
They also had to break up with their first agent because it didn’t feel right. “About six weeks later, we started our search again with a new agent, and within 10 days we put an offer on the home we bought.”
Prioritizing student loans
While buying a home with student loan debt is difficult, it’s important to consider whether you’ll regret waiting to buy. Jordan Rothman of Student Debt Diaries made the choice to pay off almost $200,000 in student loan debt before buying his $420,000 condo in West New York, New Jersey. But he now regrets having waited.
“Student loans were a huge burden for me, and I made paying them off my top priority,” he said. “I absolutely bought my home later than I would have liked due to my student debt. Because of student debt, I was forced to pay nearly $100,000 in rent during the five and a half years it took me to pay off my student loans and save for a down payment.”
While Rothman was able to pay off his loans in 46 months, he strongly believes waiting to buy until he was debt-free wasn’t the right approach. He recommended paying off high-interest student loans, such as private loans, first. Then, pay down your loan balances to improve your DTI ratio and qualify for a mortgage. Once you’re at a comfortable ratio, you can save for a down payment.
“The biggest piece of advice I have is to buy a home as soon as it is practical, even if you are burdened by student loans,” he said.
Your situation may be different, so this guide to saving for a down payment while tackling debt repayment could help you prioritize your goals. The good news is, if you decide you’re ready to buy, there’s plenty of great advice to inspire you as you work toward your dream of owning a home.
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