The Effects of Student Loan Debt on Homeownership

The dream of one day owning your own home has been an integral part of American society for generations, but in recent years soaring home prices and stagnant wages have combined to make it more difficult than ever. Even though interest rates are approaching an all-time low and there may never again be such a good time to buy, many who are looking to buy their first home find themselves unable to make the leap to homeownership because they are unable to afford to take on more debt in the form of a mortgage.

Credit cards, car loans, and high rent may be contributing to this, but one of the largest obstacles to homeownership in recent years has been young people starting their careers burdened by student loan debt.

Student Loan Debt

The Student Loan Debt Crisis

In the last few years, the student loan debt crisis has really started to impact the youngest generation of homebuyers and it has become clear that the dream of buying your first home may be much more difficult when you graduate from school already deeply in debt. In the last year, the total amount of student debt climbed past 1.5 trillion. To understand how massive that number is, it is more than Americans owe on credit cards or car loans. The average student loan borrower will graduate with over $17,000 in debt and face an average monthly payment of $393.

Studies by the Federal Reserve have found that there has been a decline in homeownership in step with this sharp increase in student loan debt. These high monthly payments on a debt that never generates equity have the effect of lowering credit scores even as they make it more difficult to budget in a mortgage payment. This generation is experiencing more hardship in securing a home loan and having more difficulty making the payments once they have one.

How To Buy A Home With Student Loan Debt

While buying a home when you have student loan debt may be more difficult, it is not impossible. Student loans affect the eligibility of a person for a mortgage, but it does not disqualify them. In some cases, student loans may actually be a benefit if the borrower does not have any other credit history. Making regular monthly payments on time and in the right amounts can help to build credit history where there once was nothing.

This is bound to take at least a year before a significant rise in the individual’s credit score is realized, and with a longer timetable, the borrower may be able to put away a small, manageable amount each month to save up for a down payment. The larger the amount of the down payment a borrower can provide the better their chances of being approved for the home loan and affording the monthly payments. Savings every month should be close to the amount that is expected to be paid for the monthly mortgage payment.

Are you struggling to buy your first home because of your student loan payments? Contact us and find out how you can turn things around and take the first step in your journey to homeownership.