NerdWallet's Smart Money Podcast
How to Keep Your Credit Strong During Economic Shifts and Know If You’re Ready to Buy a Home
Thu, 01 May 2025
Learn what rising delinquencies mean for your finances, plus how to decide if you're truly ready to buy your first home. What happens if you fall behind on your loan or credit card payments? How much do you actually need to buy a house? Hosts Sean Pyles and Elizabeth Ayoola discuss rising debt delinquencies and first-time homebuying realities to help you protect your credit and avoid costly financial missteps. Joined by NerdWallet senior news writer Anna Helhoski, they begin with a discussion of climbing delinquency rates across student loans, credit cards, auto loans, and government-backed mortgages, with tips and tricks on how to spot trouble early, prioritize which bills to pay first, and avoid risky quick-fix debt solutions. Then, mortgage Nerd Abby Badach Doyle joins Sean and Elizabeth to discuss what it takes to buy a home for the first time. They discuss how much you actually need for a down payment, what to expect with closing costs, and smart alternatives to tapping your 401(k). You'll also hear the pros and cons of renting versus buying, why assembling a strong homebuying “squad” matters, and how to find down payment assistance that could make homeownership more realistic — even in today’s high-cost housing market. Use NerdWallet’s free home affordability calculator to see how far your homebuying budget could take you: https://www.nerdwallet.com/calculator/how-much-house-can-i-afford Learn how a first-time home buyer class can help you find grants, down payment assistance and a lower monthly payment: https://www.nerdwallet.com/article/mortgages/first-time-home-buyer-class In their conversation, the Nerds discuss: debt delinquencies, student loan default, FHA loan delinquency, auto loan delinquency, mortgage delinquencies, government loans vs conventional loans, student loan wage garnishment, rising credit card debt, prioritizing debt payments, what is PMI, down payment assistance programs, 401k loan for house, using IRA to buy home, renting vs buying a home, how much to put down on a house, closing costs explained, first time homebuyer loans, home affordability calculator, 28/36 rule mortgage, credit score for mortgage, PMI removal, VA loans, FHA loan requirements, USDA mortgage, best mortgage for first-time buyer, first-time homebuyer class, home buying on tight budget, mortgage broker vs lender, emotional readiness to buy a house, how to get rid of PMI, renting benefits, first-time homebuyer grants, how to avoid default, homebuying myths, home equity, and down payment myths. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [email protected]. Like what you hear? Please leave us a review and tell a friend.
What are the current trends in debt delinquencies?
The very first step is to understand what monthly mortgage payment you can afford. And NerdWallet's Home Affordability Calculator is a really helpful first step here. So another general rule of thumb is the 2836 rule. That says to spend no more than 28% of your pre-tax income on housing costs. and then no more than 36% on all debts.
So that includes your mortgage, your car payment, student loans, things like that. So once you have that comfortable monthly payment, you can play with different down payment amounts to see which home prices would be affordable, which prices are a stretch, and what's out of your price range entirely.
Abby, so I have a question for you. I am in a mom's group and I see a lot of people asking questions about how they can get into buying a home, even though they're on an extremely tight budget. So some people say they're barely making ends meet, but they're still looking for a way to buy a house. So what would your kind of thoughts be on that?
So there's two kind of prongs to this, right? First is the financial readiness, but then there's also, you know, the emotional readiness of are you ready to settle down? Are you ready to stay in the same place for a while? So that 28-36 rule is a really useful percentage guideline because
You can back into your budget based on like what your household budget and the numbers that you're working with right now. So you definitely don't want to stretch your budget more than what's comfortably affordable. You know that term house poor. But if you're able to make the numbers work with what you know about your cash flow, it is possible even with home prices being what they are.
Okay, that's helpful. So Abby, let's talk about down payment a little bit. Can you outline how much Nikki or anyone else looking to buy a house might need to put down? I think some people are still believing that you have to put down 20%. But that's not exactly the case anymore, right?
That is such a myth, Sean, that it's like the most popular home buying myth that we encounter on the team. So you don't need to put 20% down to buy a house. And actually, the median down payment for first-time homebuyers, according to the National Association of Realtors, is only 9%.
And even below that, some loans have a minimum of 3% for conventional loans, 3.5% is the minimum for FHA loans, and some loans like USDA and VA mortgages don't require a down payment at all. So definitely don't need 20% down to buy a house. To share a personal story, when we bought our house last year,
We expected to make a larger down payment, but we bought a house that we wanted to do some renovations right away. So we only put down 5% so that we would have more money in the bank for those renovations. So we tackled a minor kitchen remodel. We remediated some knob and tube wiring and having that cash in the bank was super helpful. So
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