Everyone wants to buy their dream house. Buying or owning a home is often taken as a milestone of success in your life. For most Americans, it's also a sign of building their wealth. However, it seems most workers today delay their dreams of buying a house due to financial constraints. The reason? It's because they carry the burden of paying their student loan debt.
The Heart-wrenching Story
McKinley revealed how crushing it was to discover he wouldn't be getting his dream house. According to him, he had a strong desire to own that piece of land but he feared it would go all in vain.
Ever since he was young, Ed McKinley dreamed of owning a $65,000 house in a nearby lake in New Hampshire. Since the late 1990s, McKinley worked hard to fulfill his dream. Fortunately, the owners let him move into his new home early.
They also said he can pay the rent until his buying process was completed. McKinley was so ecstatic when he heard the news that he immediately did some revisions like installing his modern stove, redoing the floors, and painting the walls.
However, the dreaded news suddenly came to him. The mortgage company decided to withdraw his application since they discovered that his income-to-debt ratio was a bit higher than their threshold. The company refers to his astounding $34,000 federal student loan debt. So until he could pay off his student debt, he wasn’t allowed to pay for his dream house.
A Major Burden
It turns out that McKinley isn't alone in carrying this burden. According to the latest survey conducted by the National Association of Realtors (NAR), around 45 million people in the country carry the burden of paying their student debt.
Almost a fifth of that consensus owes the government more than $100,000 debt. This debt eats up a large portion of the workers' income, threatening to push down their credit scores. It also impedes most Americans from saving, most particularly for landing a house.
The Realtors adds that around 83% of workers aging from 22-35 already have a student debt. They blame their educational loans for not availing or buying their dream houses yet. While 86% of millennials believe that purchasing a house or property is a good financial investment, only 15% of them have a mortgage today.
According to NAR's managing director of survey research and communication Jessica Lautz, most student loan debt holders still want to have their own home someday, as its part of their American dream. However, it's quite difficult to get there right now according to the participants' answers.
Student loan debt has become a major hindrance to American homeownership according to NAR.
The Argument
Meanwhile, a senior research associate in Harvard University Jonathan Spader argued that while having a student loan debt is indeed a financial burden, he says that the higher education you acquire (thanks to the student loan), the more opportunities you'll have in landing a great job with higher income. He believes it can help offset your financial debt.
Overcoming the Challenges
The financial experts recommend you apply the following tips to lower your credit score and increase your chances of purchasing a house, as well as paying off your student loan debts.
Always Pay on Time
You might think that paying a few days late is okay because it won't affect your interest rate (or penalties that much), but studies suggest it can lower your credit score from 60-110 points, depending on the other items in your credit history.
Don't Max Out Your Cards
Do not use your credit mindlessly. Always aim to use 30% or less of your available credit to keep your credit score low.
Pay Your Debts
As much as you can, pay off all your debts so that you can save more money in the process. The sooner you pay your debt, the sooner you can save money to buy a house.
Check Your Credit Reports Regularly
According to the Federal Trade Commission, around 20% of consumers have errors they're unaware of that could affect their credit score. You can check your annual credit reports at AnnualCreditReport.com.