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Why Young People Can Not Afford To Buy A Home

Why Young People Can Not Afford To Buy A Home

The real estate industry is in a war, and they do not even realize it.

The major combatants are the real estate industry, the educational establishment, and the automotive industry.

The war is being fought over the young people’s debt.

Because unlike the government, the individual can only borrow so many dollars.

Now the bad news for those in the real estate industry, you are losing. Big time!

Why, because banks learned that a homes collateral is no where near as secure as a student loan. A mortgage used to be the gold plated loan, with values fairly secure, and large down payments protecting the lender.

But then came the federal government with their guaranteed loan program for students. These used to be risky loans for banks to offer as it was dependent on the future prospects of the borrower. Now they are the gold plated loan. Why, because they are not dischargable in bankruptcy. They will follow you until you die.

And this is a bankers dream. They will lend crazy money for you to get your philosophy degree, and even lower your payments when you are working as a barista, but they will never discharge the debt.

And when your career starts to turn the corner, you find your dream spouse, and it is time for the white picket fence, you are in for a shock.

You are carrying so much student debt that the entry level homes are beyond your ability to buy. Banks will look at your debt ratio and smile sweetly as they tell you that they can not help you.

And smile they will, because they do not really care if you buy a home, they just want to have you paying them interest. And you are already doing so…

Later on, we will do a post on how to get out of the trap, or even better, never get into it in the first place.

Until then, pay down your student loans as fast as you can if you want to be a homeowner in the future. Keep eating Ramen and drinking box wine or cheap beer. But get out of debt ASAP!

9 comments

  1. I find that young people are less interested in buying homes, to be honest. They seem more interested in renting for as little as possible and allocating their income to going out for dinners, cars, gadgets, etc. That's just been my experience with them, anyways.

  2. I do believe you have made a great point with this article, and see ridiculous amounts of student debt…. however there are still MILLIONS of first time home buyers out there that don’t fit this profile and can still afford to purchase a home. They just have to have the desire to do it, and of course, all the other qualifications, but desire has to be pretty strong.

    As a lender for the past 20 years, and always focusing on the entry level market, there are still plenty of great programs that will help them get into a home. And for many of my clients, it has helped them STOP wasting money on going out so much, going on lavish vacations, etc. They have set better priorities and well, I guess, matured and grown up.

    Now, I will say that car dealers have always been a royal pain for lenders since people like to drive around in nice cars, and those car payments don’t help.

    But I still have a very positive outlook for the entry level buyer, and we live in the one of the most expensive regions in the country… the wine country of northern California.

    It’s all about setting those priorities. Just get to the reality check quickly with them and if they are not willing to amend their lifestyles so they also afford a home, then on to the next client.

  3. the problem with younger generation is that they spend more than what they have. they want to live a king size life and get all luxuries. as a result they have no savings left and thus they can't afford to buy a home.

  4. Yes, of course, as we all know that young people nowadays don’t have capacity to buy a very nice home due to the obvious fact that they are only dependent to their parents or they are less interested if these are matter arises.

  5. I can hardly wait for your article on how to get out of this trap. My son is currently in college and the debt is rising. Thanks for this great article

  6. Being a young Real Estate Agent who has purchased homes and also graduated with a bachelors degree, I think this article is interesting because I see both sides of the equation. I see people of similar age and they fall into various categories. One group is focused on partying and enjoying their younger years while not paying any attention to their debts as they creep through college, the second group is the group that desires to be in a good financial situation, but work part time jobs and make just enough to pay their living expenses while going to school, and the last are the group who forego school completely and go straight to work and still struggle to purchase because their entry level positions dont allow them the economic flexibility to obtain a credit approval to get a home loan.
    Great article overall!!

    • Thanks Forrest.

      You are correct that some are doing it right, it is the lesson we are teaching our boys, but for many college debt is a debilitating spiral that prospective college students would never have taken if they had know the potential outcome. The housing industry was the carrot that lenders held out to young couples to get them to take out a great deal of debt, now they have government backed and bankruptcy protected loans housing is less important for bankers.

  7. I agreed with Elise. Many of the above comments are stereotyping "young people" and "this generation". Not all kids are raised to be entitled and dependent on their parents or the system. As always the ones who work hard towards their dreams and or goal are crippled with taxes, higher medical premiums etc. It's a very difficult situation under the present circumstances. I have seen it to be true myself. It's going to be a tough road for young people in this generation to get ahead on their own.

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