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Investing in 2024 for Gen Z and Millennials
Snowball Team
Student debt is the second biggest debt held by Americans after mortgages – affecting 44 million Americans holding $1.6 trillion in debt. According to this study, 34% of adults aged 19 to 29 have outstanding student debt and 22% of adults aged 30 to 44 still have outstanding student debt.
If you are one of those 44 million, should you hold off on buying a home? How do you decide?
For some, it won’t make sense to invest in a home, and for others, there are ways to still buy a home while holding student debt. We’ll help you understand how to make that decision below!
1. Understanding if you have high interest debt
Buying a home is a process that requires careful planning and timing, you must show mortgage lenders that you have the resources to pay. Before committing to buying a new home, you should diligently check where you stand financially, and pay off any high interest debts. Anything above 6% is considered high interest and the best practice is that it should be paid off before investing. Most credit cards and personal loans fall under this category so tackling them first before investing is recommended. Student loans on the other hand, can be refinanced to the point where it becomes low-interest if you qualify.
2. Focus on your credit score
This is the most important metric lenders take into consideration when assessing someone’s creditworthiness. They usually take a look at your FICO score and use that to determine whether or not you are a safe borrower, this will also determine your mortgage rates. You should aim to have a credit score above 750, which is considered by lenders as excellent credit.
For more advice on improving your credit score, check out this post.
Some of the best habits for improving your credit score are:
- Make payments on time. Pay in full before the due date, this shows lenders that you can handle your debts.
- Use less than 30% of your credit line. The less you use, the better - if you have a credit line of $5,000, aim to use less than $1,500.
- Don’t close old accounts. The longer your credit history the better.
3. Manage debt-to-income (DTI) ratio
The debt-to-income ratio (DTI) is your total debt compared to your pretax income and is calculated on a monthly basis. When qualifying for a mortgage, lenders take a look at your DTI and may pre-approve you with a selected rate depending on your standing. Lenders usually take a look at your student loans, car loans, credit card payments, among others to determine your DTI. In order to get the best possible interest rate, you should work on decreasing your DTI by decreasing your debts and/or increasing your income. You can take a side job or set up a side hustle in order to increase your earnings. On the other hand, in order to decrease your debts you can refinance your student loans in order to obtain a lower monthly payment. As a general rule, you should aim to spend no more than 36% of your income on debt payments.
4. Explore down payment assistance programs
Saving for a down payment is one of the biggest, if not the biggest obstacle preventing people from owning a home. You should consider and weigh all your options before making a final decision. Depending on your state and city, you may be eligible for down payment assistance when buying a new home, and therefore allowing you to purchase it years ahead of time. You may qualify for a Federal Housing Administration (FHA) loan and provide a down payment as little as 3.5%. In contrast, you may also qualify for a USDA loan, in which case no down payment is necessary.
Additionally, you may also want to research new startups that allow you to buy a home without any down payment.
Final Thoughts
Buying a home is a big decision and depends on your personal situation. This is by no means a comprehensive guide, other aspects to consider are:
- Is this the right time to buy a home? Will the property increase in value?
- Is this an investment property?
- Should you buy a foreclosure or “fixer upper”?
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Disclaimer: The information provided is for informational purposes only, to assist you in managing your own finances and decision-making. Snowball Wealth is not a financial advisor, investment advisor, financial planner, fiduciary, broker, bank or tax advisor. Accordingly, before making any final decisions or implementing any financial strategy, you should consider obtaining additional information and advice from your accountant or other financial advisors who are fully aware of your individual circumstances.
