November 23, 2021

Quick lesson: Student debt doesn't mean no new home

In the past several years, demand and lack of inventory have pushed prices to unprecedented levels. Affordability is a huge issue for first-time homebuyers in today’s tight market.

Their greatest cause for concern? Student debt. A poll by the National Association of Realtors (NAR) finds 60% of non-homeowning millennials say it is the main factor delaying their ability to purchase a home. Student debt impacts other financial decisions including general savings, retirement, getting married or starting a family.

In another survey, 55% of Gen X renters, and 52% of Millennial renters worried they won’t be able to afford a home during their lifetimes.

If you have student debt, there are things you should know: Average rent growth has recently outpaced homeownership costs. In July, the national median rent for a 2-bedroom apartment was up 10.9% from July 2020. The median listing price for a home with 2 or 3 bedroom was up 5.9% from the same time last year.

Analysts say home price growth should continue to slow as more homeowners list properties in 2022. Meanwhile, rents are rising - upwards of 40% in some of the nation’s largest metros.

Other affordability rumors continue to circulate among potential homebuyers. One of the most persistent is the belief that new homebuyers must have at least 20% of the purchase price for a down payment. It simply is not true. Among many other down payment assistance (DPA) programs, Fannie Mae and Freddie Mac guarantee loans to qualifying borrowers with as little as 3% down. Current and former service members can obtain Veterans Affairs (VA) loans with as little 0% down. The median down payment for ALL first-time buyers is 7%.

Don't give up. Staying current on student loan payments is crucial as you get ready to apply for a mortgage.

The various agencies that back mortgages, from Freddie Mac to the VA to the U.S. Department of Agriculture (USDA), all use different formulas to calculate how much of a burden your student debt poses when calculating debt to income (DTI) ratio.
Since 2017, Fannie Mae allows lenders to consider lower payments from an income-driven student loan repayment plan.

There is other good news for renters ready to buy. Freddie Mac and Fannie Mae have each recently announced meaningful steps toward increasing homebuying credit access: Timely rent payments as part of the assessment of borrower credit.

Call, text, or email Bay Equity Home Loans today for guidance on the best options for your particular financial situation. We’re here to get you home.