Student Loan Debt & Home Buyers
– Many generation X and millennials have been prevented from purchasing their first homes as they face the effects of carrying large student loan debt. This has had a tremendous impact on the housing market. One recent study showed that because of student loan debt, an 8 percent decline in home purchases by Americans between the ages of 20 to 39 has taken place. To put this in perspective, this roughly equates to $83 billion worth of real estate transactions according to John Burns Real Estate Consulting.
With the current total outstanding loan debt coming in at $1.1 trillion, student loans have had an effect on many realizing the American dream of homeownership. The average debt for a college graduate under the age of 30 is now at $21,000 as estimated by the Federal Reserve Bank of New York. We have seen the percentage of homes sold to first-time homebuyers steadily decrease. 2013 showed only 29 percent of homes sold to first-time homebuyers. The impact of student loan debt on the housing market has had wide effects and repercussions. In 2013, the National Association of Realtors (NAR) performed a housing market survey of 2,000 Americans. This survey reported that almost half of the respondents stated that student loan debt is a “huge obstacle to homeownership.”
According to the Census Bureau, the homeownership rate of Americans below the age of 35 was only 36.2% in mid-2014 compared to a record in 2004 of 43.6%. We have seen millennials staying at home to live with parents in order to save money and putting off major life events such as getting married and having children.
Another big factor in qualifying for a home loan is coming up with a down payment. Saving money can be tough, especially if one has monthly payments to make for student loans. In addition, many millennials and generation X potential homebuyers have not established a long credit history.
The Debt-To-Income Ratio
This ratio compares all recurring minimum monthly payments to gross income. The majority of lenders all require a maximum debt-to-income ratio of approximately 43 percent, although some lenders have more leniency (especially FHA lenders). A good job history, high credit score and assets can all help as compensating factors. When a debt-to-income ratio is too high then, in order to qualify for the loan, income must be increased or debt must be decreased.
Tips for Repaying your Student Loan Debt
If you are one of the many Americans that has student loan debt, then make sure always to pay your student loan payments on time as any delinquency can damage your credit score. If you have multiple student loans or a single student loan, then you can potentially refinance. By refinancing, you may be able to have a longer repayment term or lower interest rate which means that your monthly payment is reduced. Thus, making it potentially easier to qualify for a home loan. If you can pay more than the minimum payment, this will also assist in paying down your student loan debt more quickly. You can also try to negotiate with your student loan provider in order to reduce the monthly payment and potentially obtain a lower interest rate.
The bottom line is that student loan debt has hurt the recovering housing market. Granted high unemployment rates have also contributed to the low numbers of first-time homebuyers as well. Keep in mind that if you are in the market to become a first-time homebuyer your student loan debt will be factored into your debt-to-income ratio. But, it’s not necessarily an obstacle on the road to homeownership.
Sell Your Boston HomeStudent Loan Debt & Home Buyers