First Time Home Buyers vs. Student Loan Debt

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One of the biggest issues for first time home buyers today are student loans.  Today,  42 million Americans have an average of $29,000 in federally backed student loans outstanding according to Rohit Chopra, an advisor to the U.S. Department of Education.  Student loan debt remains a large problem, and it’s grown rapidly in the last decade.

studentloandebt“It’s not just millennials who are racking up the debt; baby boomers, either because they’re taking out loans on behalf of their children or they’re going back to school themselves, hold a significant portion of it”, states Meta Brown, a senior economist at the Federal Reserve Bank of New York

The debt load, along with affordability challenges that only grow as home prices rise, could be playing a role in the drop in first-time home buyers. Jessica Lautz, NAR’s director of member and consumer survey research, says 32 percent of home buyers last year were first time home buyers, a 10 percent drop from historical norms.

To help pave the way for home buyers the FHA is reducing the amount of deferred student debt, from 2 percent to 1 percent, that counts against a borrower’s debt-to-income (DTI) ratio. That means someone with $10,000 in deferred student loan debt would have a $100-per-month repayment obligation in calculating DTI, rather than $200. New House Bills are also in consideration.  Looking to the longer term, legislation is in the works to address the issue. Among the bills, the “Empowering Students Through Enhanced Financial Counseling Act,” H.R. 3179, would help ensure students are better prepared to handle debt, and the “Access to Fair Financial Options for Repaying Debt Act,” S. 1948, would provide more repayment options.

If you have applied for a mortgage in the past and have been denied due to debt to income ration with student loans being a factor, you may want to try again!!

Much of this post was an edit from an article made available to Realtors by the National Association of Realtors.

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