Why Millennials Should Embrace Homeownership Despite Student Loan Debt

With student loan debt accounting for about $1.4 trillion of U.S. debt, it should come as no surprise that millennials don’t want to buy a home. According to Pew Research, one in four millennials have some form of college debt – and it’s no secret that some millennials find themselves facing hundreds of thousands of dollars in debt.

With that kind of financial stress, most millennials are not rushing to purchase a home. The millennial generation doesn’t want to be tied down to a mortgage when the payment could likely equal their monthly student loan payment. As a result, millennials who live in expensive cities to jumpstart their careers are deciding to rent for longer periods of time.

Today, almost half of households that are headed by individuals between the ages of 18 and 24 are paying rent, according to a recent CNBC article. With more than 30% of their check going to rent payments, this age group will have a hard time saving up for a down payment on a mortgage. But does this even matter since millennials don’t want a mortgage? The answer is yes.

Millennials are missing out on the benefits of homeownership, and it’s because lenders, brokers, and even homebuyers haven’t made the advantages clear.

Where the Disconnect Lies

Unfortunately, millennials haven’t had the opportunity to give homeownership a chance. Before the 2008 financial crisis and housing bust, lenders were giving mortgages to anyone with a pulse. It wasn’t hard for someone to get approved and funded for a mortgage. But once the industry and the U.S. saw the repercussions of that leniency, lenders and the federal government became scared and tightened their criteria to the max.

Mortgage loans are now tightly underwritten and rules and regulations have increased – and these new practices do not do much to encourage millennials to purchase a home or even seek the benefits of having one. Now, that’s not to say that lenders shouldn’t have strict criteria. But if millennials don’t know the benefits of homeownership, then why would they put themselves through a rigorous process to get a mortgage?

Without knowing the advantages of purchasing a home, millennials will be hesitant to get a loan. Regardless of the strict criteria, this generation has seen their parents lose their homes and greed take over the real estate industry, which doesn’t make homeownership sound super appealing.

However, there are various reasons why millennials should buy a home. Here are a few benefits millennials will enjoy after becoming homeowners:

1. The opportunity to build appreciation and equity. There aren’t many wealthy people who don’t own a home. They know that in the long run homeownership leads to appreciation and equity, the biggest benefit of purchasing a house. Living in the U.S. allows millennials – and anyone else – to use homeownership as a surefire way to build equity over time, and if it’s done right, they will end up with an asset that can be used for almost anything.

2. Mortgage interest deduction. Owning a home comes with tax deductions, which is something everyone typically wants. While millennials should talk to their CPAs to figure out the details, the short explanation is that homeownership allows individuals to write off the interest portion of their mortgage payment. Homeowners can choose to keep their W4 allowances with their employer the same and possibly get refunded back at the end of the year. A CPA or tax professional can clearly map out all the “what if” scenarios and what a millennial’s tax return could look like. However, the first step is to become a homeowner. Then millennials will be able to enjoy the interest deductions that follow.

3. Exemption on capital gains. If millennials are observant, they’ll notice how some people buy a home in an affordable area and then, years later, sell that home and purchase one in a wealthier area and continue to upgrade from there. It’s easy to think this person got a pay raise or did something spectacular to acquire more money, but more often than not, that’s not the case.

Instead, these homeowners are seeing capital gain exemption from selling their primary residence. For example, say a millennial buys a house for $500,000 and holds onto it for a few years until it appreciates to $1 million dollars. If that millennial sells their house and there aren’t any realtor or other fees, then he’ll get around $500,000. Normally, that’s capital gain income, and the millennial would have to pay a big chunk in taxes to the government. But as a homeowner who is selling their primary residence, that gain is exempt from capital gains tax. The $500,000 is all theirs.

These are the benefits of homeownership, and they outweigh the reasons for renting, especially in expensive locations where millennials are only making their landlords rich. Despite the trillion-dollar problem that student loan debt is, millennials can still (and should) get in the real estate game and start building their wealth. Who knows? Owning a home and financially benefiting from it could help millennials pay off their student loan debt a little faster.

Bill Lyons is Founder and CEO for Griffin Funding. He can be reached at 888-721-0003 or william@griffinfunding.com.