Never before have so many people been strapped with so much student loan debt and it’s interesting to observe how these individuals are dealing with the issue of buying their first homes. Real estate companies and professionals are taking notice and help is coming from all angles.
The Student Loan Debt Crisis
In a recent article, Jon Fortenbury posed the question, “How much student loan debt is too much?” Well, he points out that the average student loan debt for a 2014 college graduate sits right around $33,000. Is that too much? According to college planning expert Mark Kantrowitz, who was interviewed for the piece, “So long as your total debt at graduation is less than your annual starting salary, you should be able to pay your student loans back in 10 years or less and comfortably.” However, he notes, it’s once that number extends beyond 10 years that things get precarious.
But most millenials don’t want to wait until their early 30s to buy a home. Despite this, it’s difficult to purchase a home with $30,000-plus in outstanding student loan payments on the table. It’s certainly a precarious situation and is forcing millennial homebuyers, their parents, agents, banks, sellers, and everyone in between to get creative.
How Lenders Deal With Student Loan Debt
According to this blog post from Housing.com, lenders and banks put a large emphasis on age and stability when determining whether or not they’re willing to approve you for a loan. “If you apply for a home loan at a very young age, banks will look into your professional history very closely.” That means if you’re a college graduate who has had a job for more than two years, you’re doing something right in their eyes.
However, they also want to look at your debt-to-income ratio. In other words, they will add up any and all monthly payments you have and compare it against your monthly pre-tax income. These debts include things like student loan bills, car payments, credit card debts, and the expected mortgage amount. In most cases, lenders want to see your ratio fall below 43 percent. In order to meet this threshold, many millenials are restructuring their student loans and looking for outside help.
Asking Parents for Help
In an article posted on the Mortgage News Daily, Rob Chrisman unpacks a recent report that highlights the trend of parents helping their children purchase their first homes. Specifically, Chrisman points out that three out of four millennial homebuyers surveyed had help from their parents. This help typically comes in the form of down payment assistance or cosigning on a loan. More interestingly, some parents are opting to help pay off some of their child’s student loan debts in an effort to lower their debt-to-income ratio.
Outsiders Offer Help, Too
But what about those millenials whose parents either won’t help, or aren’t financially capable? In an article published on USAToday.com, Teresa Wilitz reports that many cities that were hit hard by the recession are actually offering benefits for millenials willing to buy homes in areas that drastically need market revitalization.
Detroit, Cleveland, and Columbus (Ohio) are all cities where private corporations and local governments have worked together to spark real estate activity. Some of the strategies include offering forgivable loans, lowering closing costs, and even giving away homes as part of a contest (one Brooklyn poet actually won a home in Detroit via a national contest).
While the student loan debt crisis needs to be solved sooner rather than later, you can rest assured that plenty of people are willing to lend a helping hand to millenials that desire to purchase a home in the coming months and years.
