College graduate pulling a heavy safe symbolizing student loan and debt. Photo credit: GettyGetty
Student loan debt has long been cited as one of the Millennial generation’s biggest barriers to homeownership. But it seems the hurdle might not be as insurmountable as many think.
Americans currently owe a collective $1.5 trillion in student loans, according to Student Loan Hero. In just the class of 2017, the average student has about $40,000 in debt — almost enough for a 20% down payment on a median-priced home.
Naturally, that debt is going to affect these young graduates’ homebuying opportunities — but does it dash them entirely? Definitely not.
According to a 2017 study from the Federal Reserve, every $1,000 in student loan debt delays homeownership by about 2.5 months, but it doesn’t prevent homeownership entirely. In fact, by the time college grads reach their 30s, those with student loan debt have a homeownership rate nearly identical to those who didn’t take out loans.
This graphic shows the correlation between student loans and homeownership.Courtesy of the Federal Reserve
Odeta Kushi, a senior economist for First American, said that extended loan terms, higher incomes and the lower payment-to-income ratios that result from these factors are helping minimize the impact student loan debt has on homeownership.
“Millennials’ investment in education is paying off, resulting in higher incomes than previous generations at the same age,” she said. “Millennials in their 30s have higher median incomes compared with Baby Boomers when they were in their 30s and are on track to surpass Generation X.”
This chart shows that median payment-to-income ratios are shrinking thanks to increasing incomes.Courtesy of First American
First Am’s recent Real Estate Sentiment Index shows that inventory levels and overall affordability are the biggest barriers to homeownership for today’s buyers. According to Kushi, myths surrounding down payment sizes are also a factor.
“Persistent myths regarding down payment may be discouraging would-be Millennial homebuyers,” she said. “Many millennials could qualify for a mortgage and may indeed have the income to afford a house, but misperceptions regarding down payment may be holding them back.”
Kushi said many Millennials believe that a 20% down payment is required to buy a home. Most first-time buyers only put down between 5% and 10%.
Want to buy a home but have thousands in student loan debt? Here’s what Freedom Debt Relief’s Michael Micheletti recommends:
- Understand your entire debt portfolio, your debt-to-income ratio and your FICO.
- Investigate local, municipal and national down payment assistance programs. There are often tens of thousands of dollars available.
- Looking into a shared equity program for the down payment.