First-time homebuyers that believe student loan debt will delay their first home purchase aren’t alone. In fact, they’re in the majority.
Seventy-two percent of student loan debt holders that do not own a home believe debt will delay their first home purchase while making student loan payments, according to a report by Morning Consult and the National Association of Realtors® (NAR).
The report defines student loan debt holders as “adults who hold, or have held within the last two years, student loan debt for themselves, a spouse/partner or child(ren)/dependent(s).
With rent and home prices rising, monthly student loan payments can make it harder to save up for a down payment or maintain a debt-to-income ratio that qualifies for a mortgage. However, 63% of non-homeowner student debt holders say they have never been declined by a mortgage lender, suggesting that the student loan barrier may be bigger in theory than in reality.
Which homebuyers are most affected by student loan debt?
The issue of student loan debt delaying homeownership is wide but not equally spread.
Just 20% of millennials say student loan debt will not delay them from purchasing a home, less than any other generation. However, GenXers and baby boomers were more likely to say student debt would delay their first home purchase by more than 8 years. This is likely due to student debt held by a child or dependent.Generation (birth years) Student loans will not delay home purchase Student loans will delay purchase by more than 8 years GenZers (1997-2012)31%6%Millennials (1981-1996)20%14%GenXers (1965-1980)26%32%Baby Boomers (1946-1964)45%26%
Data from NAR/Morning Consult.
Among adults that say student loan debt is delaying their home purchase, 47% said they can’t save for a down payment because of student debt and 45% said they do not think they can qualify for a mortgage due to their debt-to-income ratio. Other reasons include:
Don’t feel financially secure enough because of existing student debt to buy a home (43%)
Would be not able to make a mortgage payment in addition to my student debt (40%)
Can’t save for the closing costs because of student debt (36%)
Can’t afford the kind of house I would like, or in the neighborhood I like, because of student loan debt (36%)
Don’t have the financial know-how to confidently navigate the housing market (21%)
However, 63% of student debt holders have never been declined by a mortgage lender and of those that have, the top reason was low credit score (16%).
Millennials in the middle
Among student loan debt holders who currently own a home, 50% said student loans delayed their purchase. Millennials were the most impacted. Seventy percent of millennials said student loans delayed their purchase, compared to 28% of baby boomers.
Gen Z homebuyers (born 1997-2012) fared better than millennials, with 41% saying student loans did not delay their purchase.Generation Student loans did not delay purchase Home purchase delayed 5-6 years GenZers41%7%Millennials30%12%GenXers49%11%Baby Boomers72%5%
Data from NAR/Morning Consult.
Among student debt holders searching for a home, 51% say student loans are delaying their purchase. Again, millennials (60%) and GenXers (53%) are most likely to say student loans are causing a delay.
Surprisingly, income level seems to have a reverse effect for those currently searching. Sixty percent of people making $100,000+ said student loan debt is delaying them from buying a home, the highest of any income bracket. This is due perhaps to taking on more student debt to achieve high-income employment.
Student debt is a substantial barrier to homeownership, especially to the millennials in prime home buying age. But 33% of millennials have never even applied for a mortgage and another 20% have never been denied — a greater share than those that were denied due to insufficient down payment.
While being denied isn’t pleasant, it may be beneficial for millennials to connect with a mortgage lender to check their homebuying eligibility.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.