Before you start going to open houses, pay down high interest debt now.
The higher the interest, the higher your priority should be in getting it squared up quickly. Many people pay close to the minimum on their credit card debt in favor of growing their savings, despite the fact that their payment often doesn’t even cover interest. Monthly interest for credit cards for people with near perfect credit can still hover around ten percent or more, often double or triple your student loan payments.
Pay down your cards as quickly as you can, and only use them in an emergency situation. With this extra interest-payment savings, you can pay additionally on your student loans, lessening their overall burden, or tuck away money for a down payment. This will improve your credit score too, helping you get better terms on your loan.
Be mindful of your Debt-to-Income ratio.
One of the biggest factors for people who can’t get a loan despite having a good job and some savings is their DTI, or Debt-to-Income ratio. Lenders study your monthly income compared to how much you spend paying down debts such as your loan payments, credit cards, auto loans and any other installment or revolving debt.
This is among the biggest hurdles for people with student loan debt in getting loans. Look into where your DTI is early in the process so you know how far away you are from securing good terms on a loan, then make actionable steps toward that goal before you sit down with a lender.
Investigate down payment assistance programs.
Chances are if you are making payments towards your student debt, you aren’t putting a large amount of money aside for your down payment. Many young people who have smaller savings look immediately to FHA loans, but especially in high dollar metros in places like California or New York, your FHA standard 3.5 percent can still cost tens of thousands of dollars (plus, many have higher interest rates and require mortgage insurance).
Every state and many cities have programs in place to assist qualifying homebuyers in paying their down payment. Whether they’re helping first time buyers or stabilizing neighborhoods, down payment assistance programs can be a great help to buyers whose savings have been affected by their debt load.
Sometimes the needs of the market lead people to innovate in ways wholly unfamiliar to generations before them. For our parents’ generation, signaling a stranger to drive you around was called hitchhiking; for our generation, we call it Uber.
The same type of dynamic exists in financing your investment. If you’re starting out with debt, getting more people on board or looking for a different way to kick off your investment can lessen the initial weight you carry. Alternative approaches to financing, from crowdsourcing collectives and co-ops to pitching in with trustworthy friends to get off the ground, are becoming more popular as the cost of buying a home increases in major metros.
Other alternative financing strategies such as buying owner-financed homes, rent-to-own and developing vacant land are also growing in popularity among creative youngsters looking to get started sooner rather than later.
Swing a hammer like your grandpa did. Chances are, if you are a young and indebted person with limited assets to work from, a distressed property that needs some renovation will be more in your range than a new or updated turnkey home. Do what you can yourself to save money on contractors. Remember to consider the cost of your renovation and the degree of repair that is needed; the cost of contractors can vary widely from region to region based on demand and availability.
Above all, buy a home that is going to make you money, not just the one you can afford. Thanks to advances in real estate data, we are learning more and more new things about the types of trends that appeal to different buyer demographics. Buying a home with a higher walk score, for example, can boost your rate of appreciation more than homes in car-reliant neighborhoods according to several studies.
Know about buyer trends and get a home that will earn you money in the long term, rather than trigger migraines. People whose lending options are limited may feel pressured to aim lower on the quality and location of the home they invest in for obvious reasons, but often it’s better to wait than buy an unmarketable property.
With time and patience, young people who are still paying off their education can get started on buying a home. Growing an investment with a moderate student debt burden requires preparation, but it can be done — and done successfully!
If done right, buying an investment property can provide you with the type of financial security that even makes it possible to pay off your debts more quickly than expected.