According to a 2019 survey commissioned by Bankrate.com, nearly one in five millennials say that student loan debt prevents them from homeownership. A Federal Reserve report states that homeownership for adults aged 24 to 32 has dropped from 45% in 2005 to 36% in 2014. The report says, “While many factors have influenced the downward slide in the homeownership rate, some believe that the historic levels of student loan debt have been a particular impediment.”
These “historic levels” outlined in the report are staggering – outstanding student loan balances have more than doubled to about 1.5 trillion dollars in the last decade, with the average student loan debt per individual ages 24 to 32 increasing from about $5,000 in 2005 to $37,172 in 2019.
It’s no wonder that homeownership among this group has dipped in the last few years. However, if the alternative is renting, this is another issue millennials have to contend with. Zillow Research shows in the middle of 2015, rents nationally rose more than 6 percent from a year ago, and continue to stay at high levels, with a median monthly rent of $1,440 in 2019. Living with parents is the only option for some. A January 2019 report from the Housing Finance Policy Center found that in 2015, 11.6 percent of adults aged 25 to 34 were living with their parents, and by 2017 the number had doubled to 22 percent.
Many millennials with student loan debt and little savings don’t realize that many mortgage loan options require less than 20% down, and some have no down payment. An FHA loan allows a down payment of 3.5% in all U.S. markets, and HomeReadyTM loans through Fannie Mae require only a 3% down payment. The credit requirements for an FHA loan are less stringent than a conventional loan. Still, the front-end ratio (mortgage payment plus homeowner’s association fees, property taxes, mortgage insurance, and home insurance) must be less than 31% of your gross monthly income to qualify. And if you served in the military and qualify for a VA mortgage loan, you won’t need to put any money down.*
There are solutions if you dream of home ownership but feel trapped by student loans. The key is to start saving for a down payment, watch your credit score, and manage your debt-to-income ratio. For more help securing a mortgage loan with student loan debt, contact the experts at NASB at 888-661-1982.
*VA requires a down payment if the borrower has insufficient entitlement for Graduated Loan Payment loans or where the loan amount exceeds the property value.
