Your home: Millennials are having a hard time becoming homeowners

OLYMPUS DIGITAL CAMERAAs the housing market continues to improve, there is a certain segment of the population that seems to be somewhat left out. Those who reached early adulthood around the year 2000, or millennials, are that segment and they are facing quite a few road blocks when it comes to buying a home.

Unfortunately, there seems to be a one-two punch working against this younger generation. The combination of a weakened job market and higher levels of debt has prevented many of this generation from achieving the American dream.

The hardest hit are college graduates. Many of them have substantial student loan debt which works against these young buyers when lenders are calculating their debt to income ratio. Additionally, exorbitant student loans create an opportunity for missed payments or late payments which negatively impact a buyer’s credit score.

It feels counterintuitive to me. Shouldn’t we be rewarding a generation of Americans who have accomplished a certain level of higher learning?

I have noticed a certain trend with my own clients and recently it was confirmed when I read an article in CNN Money that more college graduates are moving back home to live with their parents. According to CNN, the result is a decline in the percentage of 18-32 year olds who own their own home.

That same article said that the New York Federal Reserve recently reported that for the first time the homeownership rate of non-grads has surpassed that of college graduates.

I don’t want to wrap up my column on that somber note. That just seems wrong. So…what can millennials do to remove some of these obstacles?

First and foremost, parents and college students, please realize that the banking world continues to be more and more focused on two things: your credit score and how much debt you have. For some, student loans are unavoidable. But other debt is not. Revolving credit lines like credit cards do help establish a buyer’s credit history, so there is a good side.

A good rule of thumb is not to allow your credit card balances to exceed 50 percent of the available credit. A “best practice” would be not to exceed 33 percent. This strategy will help protect your credit score. Additionally, your debt to income ratio is calculated based on the sum of all of the minimum payments required for your revolving credit lines plus car payments and the like. By keeping credit card balances to a minimum you are also minimizing your DTI ratio.

Lastly, if you are a college grad at home with your parents, please establish credit when you can. The disadvantage of living with the “‘rents” is that it prevents you from building as much credit history as you would on your own. Although cash is still “king,” good credit is certainly the “queen” in today’s financial world.

Photo credit: House of Joy Photos on

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