A couple in their late 20s met at the party of a mutual friend. Soon they were in love and he moved into her town house. Then came a stunning platinum-and-diamond engagement ring.
The young woman’s parents nodded approvingly over the match and gave the couple $20,000. The money was to be used either for a big wedding or to buy a home.
At first, the idea of a posh wedding tempted the young woman. Each day after work she’d immerse herself in bridal magazines. But when the couple tallied up the cost of a posh wedding, they realized it would cost more than the $20,000 they had in the bank. That meant deferred–or downsized–plans for the new home they sought in a distant suburb.
After several serious talks with the young woman’s parents, the couple rethought their wedding plans. The bride would still wear a traditional gown at a religious service. But the cost of the wedding would be slashed by deleting the fancy hotel reception. Instead, the pair plans to hold their reception at the new home they expect to have built by their wedding date in the fall of next year.
Facing financial trade-offs has always been a part of maturing. But these days, young people need even more counsel from their elders on establishing financial priorities than did the parents’ generation, real estate specialists say.
Why? One reason is that many young people are saddled with unprecedented amounts of debt used for their undergraduate and graduate studies.
Furthermore, an increasing number of college students are lured into credit card use even before they’re handed diplomas.
“Nowadays, banks are throwing credit cards at kids before they get through college. They develop a credit habit, like cigarette smoking,” says Bonnie Goodstein, a Century 21 agent.
These days, many find it impossible to finance the sort of higher education they seek unless they have wealthy parents or resort to student loans. Hence, it is not unusual for a middle-income individual to emerge from college or graduate school with $50,000 to $100,000 in student loans, Goodstein says.
Yet numerous college graduates bearing school debt can still manage to obtain mortgage financing for a first home–assuming they’re not engulfed in credit card debt, according to Curtis Blau, a home-loan broker for a small, independent mortgage firm.
He tells the story of a recent law school graduate and his young wife, a legal assistant, who together were bearing more than $100,000 in education loans.
Fortunately, the couple had resisted the allure of credit-card offers that came in the mail.
“If they’d had credit card debts on top of the school loans, they would have been buried. They could never have purchased a place of their own,” Blau says. Through careful counsel and planning, the young couple bought a modest, one-level starter home in a middle-income suburb.
Eventually, as the husband’s legal career ascends, the pair should be able to buy a more spacious place if they remain frugal and stay away from excessive consumer debt.
But avoiding thoughtless expenditures isn’t easy.
“Young people want to buy everything really quickly. Everything has been made easy for a lot of them, as if a money tree has been growing in the backyard,” says Goodstein.
Here are pointers for parents and others trying to guide young people on the path to owning their own property:
– Use this secret to help a new college grad get a mortgage.
Has your daughter recently landed her first job after completing engineering school? Then don’t necessarily assume that a home purchase is out of her reach because of the heavy burden of student loans.
Some students need not begin paying back their student loans for a full three years after graduating. In many other cases, you can convince the organization servicing your loan to grant you a three-year waiver on initial payments. Blau says.
Gaining a three-year waiver on student loan payments can be a huge plus. Why? Because the guidelines used in making many conventional or government-backed mortgages don’t require you to count loans not due for three years or longer after you’ve taken out the mortgage.
Therefore, you could qualify for a mortgage on the same basis as if you didn’t have the obligation on your balance sheet at all, Blau explains.
– Know the value of a parental pep talk.
As the parents of grown offspring, you may regret it if you didn’t teach your children good spending and saving habits while they were still young. But it’s not too late to influence most young people on matters of finance after they’ve reached their 20s.
The lifetime experience you have to offer your grown children in pursuit of a homeownership goal may be no more elaborate than an after-dinner chat on your living room sofa. Still, the psychological encouragement of a pep talk can be invaluable, says Goodstein, the mother of a 21-year-old, as well as a teen-ager.
– Help set up counseling sessions on home buying for your offspring.
Of course, you can always take your grown child to a fancy financial planner. But why pay fees when ample free counseling is available through professionals in the mortgage lending and realty fields?
Most mortgage lenders will welcome the chance to meet with young adults–as will realty agents and brokers. Indeed, it is perfectly appropriate to ask for such expert counseling a year or two before your child is ready to buy a home, Blau says.
– Do some serious thinking about your family wedding plans.
“Every girl dreams of walking down the aisle in her wedding dress,” says Portia Pantages, a broker-associate for Coldwell Banker. “Sometimes the parents want to reciprocate for all the big weddings they’ve attended.”
Forgoing a big reception could allow your child to buy a detached home rather than a condo-apartment. And you may discover that a small traditional wedding is all your daughter (or future daughter-in-law) truly seeks.
As Pantages says, “You can have a very traditional wedding without spending a lot of money.”
