Carey Ann Cyr
Area Sales Manager | NMLS #160055
Branch NMLS #1093019
Posted On April 10, 2018
One of the most pervasive issues hurting first-time home buyers today is student debt. The substantial cost of higher-education pushes many young Americans to take out high-balance loans and graduate with debt in the range of tens of thousands of dollars, or higher, depending on the degree. Over 45 million Americans carry student debt, the average borrower owes more than $30,000 and one-fifth of borrowers owe more than $100,000. Student loan debt is hurting homeownership in a number of ways, because it lessens the borrower’s ability to save for a down payment and closing costs, it increases the borrower’s debt-to-income ratio, and in some cases negatively impacts the borrower’s credit score.
Saving for a Down Payment
The National Association of Realtors (NAR) reports that 85% of non-homeowners between the ages of 22 to 35 are not buying a home because they can’t save for a down payment. With the median American home price around $241,700, a 20% down payment creates a $48,340 hurdle, and even a 10% down payment is near $25,000. For a non-homeowner burdened with student debt, saving for a down payment while simultaneously paying down debt is a serious challenge. With home prices on a trend of steady appreciation, this problem is likely to persist.
Most lenders and banks consider student loan debt to be “unsecured debt.” According to the NAR, one-fifth of would-be home buyers with student debt are denied mortgage financing because of their debt-to-income ratio. Debt-to-income ratio requirements vary from lender to lender, but the maximum debt-to-income ratio a home buyer can have to secure a qualified mortgage is 43%. When student loan debt is compounded with other debts like auto loans, a borrower can easily exceed this threshold.
The Brookings Institution projects that 40% of student loan borrowers are expected to default on their student loans by 2023. Credit incidents, like defaulting on student loans, will significantly lower the credit score and make the borrower less eligible to secure additional financing. Repairing credit damage can take years, barring the impacted borrower from homeownership even longer.
A home is one of the first appreciating assets many Americans will home. Buying a home is a way to start building wealth and securing a strong financial future. With student loan debt threatening this stability of owning a wealth-building asset, some borrowers are turning to other sources for growing their down payment, like HomeFundItTM, the first and only approved down payment crowdfunding platform. To learn more about HomeFundIt visit www.HomeFundIt.com