Are you tangled up in the sticky dilemma of carrying a chunky student loan debt while dreaming of those picket, white fences around a “home sweet home” of your own? If you find yourself in such a pickle, join the club! Tons of Americans are sweating over this decision right now. Should we hunker down and strangle our student loans first before hustling for a house down payment, or can we juggle both simultaneously?
Student Loans Vs. Home Savings: The Great American Debate
Owning a new set of house keys without being nagged by monthly student loan payments? Sounds magical, right? Reducing your overall debt definitely makes you more appetizing to mortgage lenders. But flip the coin, and you’re spending extra years in the renting game while property prices spike all around. A bitter pill to swallow given the current state of the U.S. real estate market.
You’re not alone in treading the tight rope of financial milestones. It’s no secret that student debt can be a pesky little hurdle. According to our pals at the National Association of Realtors, almost half of the first-time homebuyers who struggled to save for a down payment pointed their fingers at student loans.
The Struggle to Save Up is Real
Isn’t saving for a house just like watching paint dry? A recent report from Zillow suggests it’s actually way worse than it used to be. Bagging a 20% down payment took an average of six years for new buyers back in June 2001, according to a home-buying startup called Tomo. Fast forward to today, first-time homebuyers typically spend the better part of a decade working towards that golden 20%. And what’s to blame? Skyrocketing home prices, ballooning student loan balances, and let’s not forget those lingering repayment terms! So, where does that leave us? The million-dollar question: should we toss money down the student loan drain or pump it into our home savings fund?
Spark Up Those Financial Goals
Many experts back up the fact – buying a house while wrestling with student debt isn’t just some wild, financial urban legend. Sure, it’s possible. However, prioritizing between kicking student loans to the curb or stashing up for a house down payment should be part of a larger financial game plan. Denver-based financial planner, Kristi Sullivan, throws a trick our way — focus on two or three major goals, lay down a sound financial groundwork before getting serious about homeownership. But hold up, what about our other debts? Religion or rebels, we all agree, high-interest credit cards need to be squashed first! Followed by comparing our auto loans or personal loans against student loans, then shuffle the cards as per priority.
Establishing an Emergency Fund
We might live by the “live in the moment” principle, but let’s not leave our future selves in the lurch trying to survive a financial apocalypse. Best to keep a financial cushion handy. An emergency fund covering six months of important expenses? Sounds like a plan! Cold hard cash in a high-yield savings account or certificate of deposit is a perfect hideout for this reserve.
Eye on the Retirement Savings
Stash as much as possible early on with the aim of making compound interest your best pal overtime. Bottom line, don’t leave any free money on the table. Ensure you’re at least squirreling away enough to hook your employer’s full matching contribution. Wait, did someone say instant 100% return?
Unmasking Your Student Loan Debt
Once we’ve battened down our financial hatches, let’s throw a spotlight on the student loan debt.
As per the National Center for Education Statistics, US graduates step out into the world carrying over $29,000 in loans, while our brainy masters’ degree holders pile up close to $54,000. Law school veterans cart around $133,000 in debt on average, and our saviours in scrubs rack up an eye-watering average exceeding $190,000.
Interest rates across student loans scatter all over the place. Where your debt lands on this spectrum sways your decision significantly. We’re talking tens of thousands here, people! Consider your loans and their interest rates and determine if it’s more sensible to squash them first before moving onto the house savings.
Cash or Consequences: Buying a Home
Paying off student loans aggressively could streamline your path to the much-coveted mortgage approval. If your total debt looks like a skyscraper next to your income, the scary Debt-to-income ratio could shut the mortgage door on your face forever. In this case, chances are your lender might take the liberty to make the choice for you – tone down your student debt before those house keys jingle in your pocket! How does that sit with you?
Stepping Into Homeownership
Been fishing for the landlords all these years, and now it’s time to own the pond? Brace yourselves! Homeownership carries a bundle of costs and responsibilities that go far beyond rent – property taxes, insurance, utilities, and the never-ending home repairs. Map out your existing debts and expenses and measure them against the costs and responsibilities of owning a home. Tempting as it is, buying a house is a huge commitment. As Logan Murray, a Tempe-based financial planner, cautions, “Student loans don’t need to dictate every aspect of your financial life.”
*Sigh* Good ol’ 2021… It was only a year ago that this article went out to the world. Crazy how times and statistics have changed! But isn’t that life – an endless rollercoaster of updates?
More from Money:
- How to Pay Off Student Loans Fast
- How to Get Student Loan Forgiveness
- 8 Best Mortgage Lenders