Dreaming of a deed and a diploma

YOU CAN BUY A HOME AND SAVE FOR YOUR CHILD’S COLLEGE WITH THE RIGHT PLANNING

Real estate prices in many markets are skyrocketing. College costs are headed for the stratosphere. So how can someone with dreams of affording both a home and higher education for their offspring achieve both lofty goals? By staying grounded in good financial common sense, the experts agree.

A recent study by Hometap found that 3 in 5 Gen Y homeowners believe housing expenses make it tough to reach their financial objectives; in fact, 42 percent fear they won’t be able to save enough scratch to fund their kids’ college tuition. And nearly 6 in 10 more financially fortunate millennials reveal they’d postpone saving for retirement so that they could finance that higher education aim.

Stephanie Hammell, a Southern California wealth adviser for LPL Financial in Irvine, says these dual concerns are warranted.

“Buying a home and paying for college are two of the largest liabilities that Gen Y parents will have to face throughout their lives. This is a generation that is historically receiving lower wages than their baby boomer parents did at their age. And on top of that, you have piles of student loans that millennials have accumulated,” she says. “That adds up to a lot of liabilities, often without the disposable income to match it.”

But Melissa Sotudeh, director of Advisory Services at Halpern Financial, based in Rockville, Maryland, says this is not a new problem, it’s just a new generation.

“Not too long ago, their parents were likely struggling to balance saving for both retirement and college,” Sotudeh says. “College costs and home prices have always tended to increase faster than the rate of inflation.”

Her advice? “Instead of worrying, be proactive and start saving early and often,” Sotudeh says, adding that with careful planning and discipline, being both a homeowner and a proud parent of a future college graduate is doable.

“The overall goal for most people should be to increase their net worth, which means decreasing debt and increasing your financial assets,” Sotudeh advises.

That means focusing first on paying down high-interest debt accrued by credit cards and whittling down your student loan balances.

To boost your financial assets, you could put money in stocks, bonds, mutual funds and other investments — preferably with the guidance of a financial expert.

“But you have to pay for a place to live anyway,” says Bryce Fuller, real estate broker/investor with Baird & Warner in Glenview, Illinois. “So why not pay for something you’ll own and earn equity for than for something your landlord will own? The timing is great for purchasing a home, as interest rates remain near historic lows, and there are many loan programs available — including ones offering down payment assistance.”

The key here is buying within your means; you may have to sacrifice square footage, convenient location, or other amenities to keep your expenses manageable and have something left over each month to devote to college savings.

“The rule of thumb is to keep housing costs at 30 percent or less of your gross income,” Sotudeh says.

Fuller suggests a clever strategy: Buy a rental property that can generate monthly positive cash flow — dollars you can put toward a college fund. You can either rent out a portion of your primary residence or buy a multiunit property (like a duplex, triplex or fourplex) in which you occupy one of the units.

Speaking of a college fund, your best move may be to open a 529 college savings plan, which offers tax-free earning at the federal and state level.

“Ideally, as soon as your child is born, start a 529 plan and fund it weekly. Start small — it’s about building good habits and consistency. And tell family and friends to give small 529 payments gifts in lieu of birthday or holiday presents,” Hammell recommends.

To help keep future college costs down, aim to send your future student to an in-state public school, where tuition is likely to be a lot lower than for outof-state and private colleges.

If you can’t swing both a mortgage and a college fund right now, don’t panic. Tackle the homebuying goal first so you can start building equity and stop paying rent.

“Parents can take out loans in their name to pay for their kids’ college — Parent PLUS loans are federal loans designed for this purpose,” says Teddy Nykiel, marketing director at Naperville, Illinois-based My College Planning Team. “They’re more expensive than other federal student loans, but they’re eligible for the same repayment options. For instance, Parent PLUS loans qualify for the incomecontingent repayment plan, which caps monthly payments at 20 percent of the borrower’s income. If their income is low enough, that amount could actually be zero dollars per month. The plan also offers loan forgiveness after 25 years.”

But for best results, consult an expert.

“Meet with a certified financial planner who can look at your individual financial circumstance and help guide you in the right direction for both goals,” recommends Jason Ball, owner of Ball Comprehensive Planning in West Linn, Oregon.