Yahoo Finance This NY woman wants to buy a home despite $115K of debt — Dave Ramsey co-hosts had 'aggressive' advice for her
The cost of living is still high these days, from rent rates to groceries — and most Americans are feeling the squeeze on their wallets.
Meagan from Rochester, NY, can relate. She called into The Ramsey Show looking for advice on managing her money in preparation for buying a home.
She revealed to co-hosts Dr. John Delony and George Kamel that, as a single woman earning a $68,000 salary as a social worker, she wanted to purchase property because she worried that the soaring cost of living would leave her out of the real estate market altogether if she waited.
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Meagan’s biggest fear is that, in the current economy, “it’s not an option not to buy.” She’s worried that rents will continue to rise and believes that interest rates will continue to go up.
In order for her to afford a home, her retired parents have agreed to refinance her student loans by taking out a home equity line of credit (HELOC). This would, in theory, increase Meagan’s chances of being approved for a mortgage — but Delony and Kamel urged her not to go through with it.
“Please don’t do any of the things you’re doing Megan,” Delony pleaded. “All the things you’re saying, please don’t do anything of these things.”
Here’s why they want her to “get aggressive” with her debts instead and forget about buying a home for now.
Buying a home isn’t easy when saddled with debt
Meagan’s goal is to buy a home in early 2025. She currently lives in a one-bedroom apartment for a modest $1,000 a month.
The fact of the matter, though, is that Meagan’s aspirations of buying a home are marred by her significant debt load. She currently holds $115,000 in debt, which includes a $48,000 private student loan that her parents will help pay off.
While the HELOC her parents signed off on would eliminate some of Meagan’s financial burdens, Delony and Kamel were worried about the future of her parents’ retirement.
With a HELOC loan, you’re effectively borrowing against the equity you have on your home and putting up your house as collateral. This can be dangerous if you don’t have a clear financial path to paying off the loan — which is especially risky since Meagan’s parents are already retired.
“It [the HELOC loan] just put your parent’s house on the block,” Delony pointed out. “Whenever you buy a house, make sure you’ve got space for them to move in with you someday.”
High inflation and elevated mortgage rates doesn't make Meagan’s financial situation any better.
The U.S. Bureau of Labor Statistics (BLS) reported that the U.S. inflation rate increased 3.4% during the 12-month period leading up to April 2024.
This is lower than the record inflation seen soon after the onset of the COVID-19 pandemic, but it’s still significantly higher than the Federal Reserve’s target inflation rate of 2%. Higher inflation can result in higher interest rates for HELOC loans.
In addition, the current 30-year fixed rate mortgage average in the U.S. hovers at around 6.99% as of June 6, 2024, according to the Federal Reserve Bank of St. Louis.
Elevated interest rates like these have made buying a home extremely difficult for the average American, especially for those saddled with debts.
Unfortunately, despite Delony and Kamel’s advice, Meagan’s plans are already underway.
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Finding ways to supplement income
Delony’s final advice to Meagan was that, if she’s worried she can’t afford to continue renting out her $1,000/month apartment, she should consider another job industry — or at least supplement her income with a second job.
Sometimes, it’s necessary to “put your calling on hold” if you’re not earning enough, he added.
If that wasn’t an option, Delony also suggested Meagan move in with her parents while she saved money and paid off her debts.
“What’s wrong with paying $1,000 on rent [when you’re] making $68,000?” Kamel asked. “That’s not the problem here… it’s not the thing holding you back.”
When Meagan clarified that she was concerned rent rates would climb so high she’d never be able to save for a house, Kamel responded by asking, “Do you have insider knowledge that interest rates are going to continue to go up?”
Delony added that Meagan is far too wrapped up in “imaginary catastrophes,” adding that while rent will certainly go up over time, it wouldn’t “go up to the tune of putting your parents’ house on the block.”
Kamel pointed out that, even with her parents taking on a HELOC, Meagan will still have roughly $80,000 of debt to pay off — something that can be paid off in time if she takes a second job and moves in with her parents.
Meagan needs to “get aggressive” with her debt and prioritize that over trying to buy a home, according to Kamel.
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