Lew Sichelman

Young people have many options when it comes to homeownership – perhaps too many.

What should I do first: get married or buy my first house? Should I buy the car I’ve longed for, or continue to drive my clunker and save for a house? And if I find a house I like and can afford, should I pass until mortgage rates come down to a reasonable level?

The answers are personal to your own particular situation and choices. But to give you some guidance, let’s take a closer look:

Car vs. House

Young homebuyers who purchase a shiny, brand-new automobile are effectively putting an end to their housing aspirations, for now. That’s because your car payments will be counted against you as debt when you apply for a mortgage. And too much debt is what disqualifies most people from financing.

Yet, according to new research commissioned by cars.com, 76 percent of all Gen Zers – the population cohort born between the late 1990s and the early 2010s – purchased their first rides before they were 21. And that, in effect, blows their shot at homeownership.

“You can talk to loan officers across the country about mortgage deals that have gone bad because the borrower had an expensive car,” says Donnell Williams of Destiny Realty in Morristown, New Jersey, and a past president of the National Association of Real Estate Brokers. “That really messes you up … If you do buy a car, you don’t have to buy the Lexus, the Benz, the big Dakota truck.”

The moral: Put the house first. Unless you can pay cash for your new ride – and if you can, you likely have enough for a down payment – stick with the old clunker. As Williams says: “You can rent the car and buy the house, but don’t rent the house and buy a car.”

Marriage vs. House

Which comes first, a house or a spouse, is one of real estate’s chicken-or-egg questions. According to a LendingTree study, over 35 percent of all Gen Z owners put off the wedding bells until they have achieved homeownership. But Zillow puts the number even higher. It says almost two-thirds of Gen Zers find love after buying a house.

In contrast, LendingTree found that only 1 in 4 Millennials – born between 1981 and 1996 – did that. Data shows that younger generations prioritize homeownership over other milestones like establishing a career, the lender-borrower matchmaker LendingTree says.

The National Association of Realtors found similar, if less drastic, results. According to NAR’s latest Profile of Buyers and Sellers, 10 percent of all buyers in 2023 were single males, and 19 percent were single females. That adds up to nearly 3 out of every 10 buyers were single.

Other data suggests that some young folks are banding together, either as unmarried couples or as friends and roommates, to buy a house.

NAR says 9 percent of last year’s buyers were unmarried couples, the lowest share of married couples since 2010. But a study by JW Surety Bonds found that almost 15 percent of buyers co-purchased a place with a nonromantic partner, and nearly half of all respondents would consider doing so.

Sharing the cost of a house and all the ancillary bills is tempting. And it actually works out for some people. But if someone wants out or if some kind of rift occurs, breakups can be bad news.

The best way to deal with that possibility is to address it head-on before you sign a contract. While everyone is calm and thinking clearly, decide how you will dissolve the partnership if and when the time comes. Hopefully, it will never come to that. But if it does, the pathway forward will already have been set.

Mortgage Rate vs. House

Waiting for mortgage rates to come down is usually folly. For one thing, no one knows if rates will slip, by how much or when. In the last few weeks, rates have fallen from a high of near 8 percent to about 6.5 percent. But since then, they bounced back up a bit.

For another, any savings that may occur by waiting could be erased by an increase in house prices that accrue during your delay. No one knows how much prices will rise or fall, but in the last year, they rose roughly 6 percent nationally. Each neighborhood is different, so some places could have seen prices rise or fall.

At the same time, you can always jettison high-rate financing for a less expensive loan by refinancing. In mortgage industry parlance, it’s called “date the rate, marry the house.” But I say it’s more like “marry the house, divorce the rate.”

But wait: Refinancing ain’t cheap. It’s likely that you’ll have to pay another origination fee – say 1 percent of the loan amount – plus another round of closing costs.

The good news is that you probably won’t have to pay anything out of pocket; most lenders will allow you to roll those costs into the new loan’s balance. But depending on how soon you refinance, that means you could end up owing more than you originally borrowed.

If you wait long enough, it’s likely that you will have built up enough equity that your new loan amount will be less than what the house is worth. But if you pull the trigger too soon, you could be “underwater,” or owe more than the place is worth, at least until you pay down the balance.

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.

Which Comes First? A Buyer’s Dilemma

by Lew Sichelman time to read: 4 min