By Mike Bodeen · 23 May 2016
Yet There’s Hope!
A thought provoking article (at least to me) showed up in the Wall Street Journal today; “Homeownership Elusive for Adults Without Degrees.” Research that was recently released from “Apartment List,” a rental listing website indicated that home ownership rates among young (18-34) adults without a college degree face a wait time of 15.5 years before being able to afford a starter home. This is for a conventional loan needing 20% cash down payment for a median priced home in the lower third price range of their market. This compares to a wait time of just over 5 years for grads without student loan debt to save enough and qualify for the loan.
People without college degrees, reads the article, fare worse because their incomes tend to be much lower and they are less likely to get help from family or friends. And in pricier cities, such as San Francisco a young adult would have to wait for 48 years to afford a 20% down payment on a home – basically impossible. The home ownership rate fell to 34% for young people less than 35 years old. And in places like the Bay Area, the rental rates are through the roof as well.
How do student loans affect this? Research is showing that student debt is delaying but not preventing young folks from buying homes. All debt is factored into qualifying for a mortgage.
So what’s a young (or older) person to do?
The article mentioned the good news that one doesn’t need a 20% cash down payment to buy a home FHA and that VA loans provide for down payments from zero percent to 3.5% as a cash down payment. Their qualifying ratios are also less strict than conventional. Some local municipalities also provide down payment and/or closing cost help for buyers. These programs come and go. A good local lender can help in these regards.
I believe that if a person does whatever it takes to own a home, this will go a long way to being the great equalizer towards wealth acquisition for them. The first step is to sit down with a professional such as a qualified mortgage broker and see where you’re currently at as far as qualifying for a loan. If you’re not in a position to buy now, the mortgage professional can give you an idea of what you need to do on your end, whether it’s to make more money, correct credit issues, etc. There is no fee for doing this. Mortgage and Realtor professionals consider this a part of the services we can provide to earn your business whenever you are ready to buy.
It’s understandable that young people especially want to experience life before “getting tied down” with a family or mortgage. It’s important however that there’s a plan in place to eradicate debt and obtain a home as soon as possible. We’re seeing opportunities slip away with the still low interest rates and affordable homes, at least in Phoenix.
One last thing young person; Don’t expect to buy a home like the ones your parents live in. It took years for them to do that. But just start low and build up. Before you know it, equity (cash waiting to happen) will build and you’ll transfer that equity to your next home, and the next, and so on.
And wouldn’t it be nice not to sweat the increased rental rates or a haranguing landlord? You betcha. Go for it.