Excessive levels of student debt repayments are not acting as a roadblock to housing for first-time homeowners, at least not yet.
According to a new report on student debt and housing from Capital Economics, while many believe that America’s outrageously growing amount of student debt is holding millennials back from buying a home, calculations suggest that they are wrong.
According to the National Association of Realtors, the average first-time buyer (FTB) is 31 years old. Assuming that they graduated in 2005 or 2006, when the average student loan debt was around $16,000, and that they found a job within a year or so of leaving college, they are likely to have already paid off most of the debt under the standard terms of a 10-year federal student loan.
And even in the case that they have no progress in paying down their loans, at current interest rates, a 30-year mortgage with a 3.5% down-payment (the minimum permitted by the FHA) on a home worth $178,000 (the average price for a FTB home) generates monthly repayments of around $940 including fees. Add in a $16,000 student loan or, conservatively, two loans for a couple, and that rises to $1,300 per month.
So here’s the math.
Since the maximum permitted debt-to-income ratio for FHA loans is 43%, this implies that the average FTB household needs a gross income of at least $36,280 to qualify for a FHA mortgage on an average priced home.
And according to the Census Bureau’s Current Population Survey, the median income for households headed by someone aged 30 to 34 is $58,500, which is well above the calculated threshold suggesting that student debt repayments should not be a major constraint on FTB demand.
This is doesn’t mean that student debt won’t eventually be an issue.
The stock of student debt has tripled since 2005 to reach almost $1.2 trillion. That has pushed the average debt per student from around $16,000 to $27,000.
Here’s the Bottom Line:
Gold Financial does not count Deferred Student loans in a buyer’s ratios.
We can usually qualify a buyer for much larger FHA loan than other lenders allow.
Call us 1st to AVOID mortgage problems,
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