Too much debt, Gen Z has a harder time buying a home than any other generation

Gen Z is the generation with the highest personal debt burden of any age group, making it very difficult for them to buy their own home, according to the latest survey in the US.

A new Newsweek poll found that Generation Z (those born between 1997 and 2012) in the US carry more personal debt than any other age group. On average, members of this generation carry $94,101 in personal debt, compared to $59,181 for Millennials and $53,255 for Generation X.

Credit card debt is the most common type of debt among Gen Z; about 56% have this type of debt. Despite their high total debt, only about 16% of Gen Z respondents have a mortgage.

More worrying than the huge debt is the high delinquency rate of Gen Z. They also have the highest credit card delinquency rate compared to other generations, according to a 2024 study by the Federal Reserve Bank of New York (USA).

High debt burdens are a barrier to home ownership for Gen Z. A history of serious delinquencies can be a deal-breaker. Late payments lower credit scores and stay on credit reports for years even after the balance is paid, making it much harder to get approved for a mortgage.

Is Gen Z Too Indebted to Own a Home? (Photo: Stock Adobe)

There is no limit to how much debt you can take on to get a home loan, but your debt-to-income (DTI) ratio does affect this. The DTI measures how much of your monthly income is devoted to debt repayment, which helps lenders assess whether you can afford to pay your mortgage. It is calculated by dividing your total monthly debt payments by your total monthly income and multiplying by 100.

In general, lenders prefer a DTI of 36% or less, with 28% to 35% allocated to housing costs. Some lenders may approve borrowers with a DTI as high as 43%, but this is rare.

Gen Z may have to spend a significant portion of their monthly income on debt repayment. Achieving a favorable DTI remains a challenge, while home prices and mortgage rates remain high.

However, according to experts, there is still a way for American Gen Z to buy a house by taking out a loan. In this situation, they should focus on improving their financial health to increase the chances of approval and get better interest rates and terms.

There are three ways to reduce your debt-to-income ratio, such as focusing on paying off existing debt. Gen Z can reduce credit card balances, student loans, or other outstanding debt to reduce their monthly obligations.

The second way is to increase your income to reduce your DTI through a raise, a second job, or freelancing. The third way is to borrow less, choose an affordable home, or have a larger down payment to reduce the amount you need to borrow, reducing the monthly debt ratio to pay on your mortgage.

How to buy a house when you are in debt. (Photo: Stock Adobe)

Lenders don’t like to take risks, they want to see that the borrower is trustworthy with a history of paying on time. A personal credit score is one of the best indicators of this. A high score not only increases your chances of being approved for a loan, but can also secure a lower interest rate, saving you thousands of dollars over the life of the loan and lowering your DTI ratio.

Source: https://giadinh.suckhoedoisong.vn/no-qua-nhieu-gen-z-kho-mua-nha-hon-bat-cu-the-he-nao-khac-17225031508404389.htm