Let's face it - the burden of student loans isn't fun and it is negatively impacting first time millennial home buyers. The total student loan debt in the United States is nearing $1.5 trillion, which is over a 300% increase in the past 15 years, with an average student coming out of college with almost $33,000 to pay off. Not to mention, private loan interest rates can be north of over 12%. Most students coming out with this type of debt have no idea what this actually means and what they're required to pay. Since loans, just like mortgage payments are amortized, a borrower paying minimum payments over the life of a loan can be paying almost just as much interest as the original loan balance. These crippling monthly payments are definitely having a negative impact on the housing market and is making it harder and harder for people to save for a down payment on a house. If you're struggling to save money for a down payment while paying student loans I'd recommend the following.
1) Refinance your student loans. There are plenty of companies that offer refinancing of loans such as SoFi, Earnest, and Laurel Road. These companies offer much lower interest rates for private and federal loans that could save thousands of dollars over the course of the loan. Plus, your payments will be lower and you can apply extra payments to the principal. However, it's important to realize that when refinancing you can lose many benefits federal loans offer you. It's crucial to read the fine print before refinancing.
2) Work on achieving a higher credit score. There are various factors that can impact one's credit scores. The best way to do so is to make payments on time and keep your credit utilization low. Having a higher credit score will benefit you in the long run to qualify for a mortgage and make a lender more likely to approve you for a mortgage. If your credit score is lower, it means you are a risky borrower and will make you less likely to get approved.
3) Focus on earning more! The more you earn, the more money you can put to savings or pay off your loans quicker. If you're able to pay off more of your student loans quicker, you will pay less interest and the loan will be paid down much faster. You can also opt to put that money aside for a down payment. Getting another job as a bartender, babysitter, or in my case a real estate agent helps to earn more money and prepare for the future.
College can be extremely expensive and cause hardships on your financial health, but with these tips you can save thousands of dollars and be better off in the long run to qualify for a mortgage and become a first-time home owner!