Student loan debt is a major obstacle for many first-time homebuyers today.
Among recent buyers, 37% of first-time purchasers carry student loan debt, typically around $30,000.
Over half of student loan holders say their debt has delayed them from purchasing a home.
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First-time buyers with college loans also tend to purchaseless expensivehomes.
Large monthly loan payments mean these buyers qualify for smaller mortgages and have tighter budgets.
A big chunk of their income goes toward student debt instead of a housing payment.
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This shows how student loans can have a long-term impact on financial stability and homeownership rates.
Paying student loans on time can actually help build a credit history.
However, missed payments or loans in default will hurt credit scores and make mortgage approval harder.
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Lenders closely watch debt-to-income ratios (DTI) how much of a persons monthly income goes to debt payments.
One major mortgage company, Freddie Mac, generally wont buy loans from borrowers with DTIs over 45%.
With payments on hold from March 2020 to late 2023, many borrowers credit scores improved.
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Fewer borrowers had other bills in collections as well during this period.
Policy Changes
Lenders and government agencies have tried to help by adjusting mortgage rules.
Regional Differences
The impact of student loan debt on homebuying varies widely by region.
About 17% of D.C. residents have student loans the highest share in the country.
These areas often have lower home prices too, which can make the path to homeownership a bit easier.
Many young adults feel they have to put major milestones on hold because of their loans.
The most commonly delayed step was buying a home, named by 29% of respondents.
Psychological Impact
The psychological pressure of debt can be immense.
Young professionals often graduate and enter their 20s or 30s already owing tens of thousands of dollars.
This debt can feel like a weight that forces them to alter their life trajectory.
Several programs and proposals aim to help borrowers become homeowners despite their education loans.
On the federal level, agencies have adjusted lending rules to be more forgiving toward student debt.
Marylands SmartBuy program is a leading example.
If the buyer stays in the home for five years, this student debt loan is completely forgiven.
Other places have their own initiatives:
Future Legislation
There are also broader proposals on the horizon.
One notable idea in Congress is the Transforming Student Debt to Home Equity Act, introduced in 2022.
During the pandemic, the government paused federal student loan payments and interest.
Homeownership among young adults with loans ticked up during 20202022.
However, this bright spot may be fading as the payment pause has ended.
Will college costs and debts continue to rise unchecked?
But there is cautious optimism that continued attention to this issue will spur more solutions.
