Student loans are a major barrier for millennials looking to buy a home

Student loans are a major barrier for millennials looking to buy a home

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Half of the people who have not yet purchased a Home Point for their student loans are the reason for the delay.

That’s according to a new report from the National Association of Realtors, which partnered with Morning Consult to conduct an online survey of 1,995 student loan borrowers in June.

Millennials were the most likely (60%) to say their student loans distracted them from homeownership, although more than a third of baby boomers said the same.

“Housing affordability continues to deteriorate, putting future home buyers with student loans at a great disadvantage,” said NAR chairman Charlie Opler.

The stock of student loans in the United States has exceeded $ 1.7 trillion, and Americans are more burdened than credit cards and car loans. About a third of borrowers are past due or in default.

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Mark Kantrowitz, an expert on higher education, said your student loan will affect your mortgage eligibility in two ways.

On the one hand, your payment history on the loan will affect your credit score, he said. If you fall behind on your servant’s monthly bills, expect your score to drop.

“This can lower your chances of loan approval and increase the interest rate you pay,” Kantrowitz said.

Experts say that despite the challenges of student loans, it is still possible for borrowers to become homeowners.

When you’re saving for a down payment or preparing to apply for a mortgage, staying up to date on your student loans will be important.

Housing affordability continues to deteriorate, seriously disadvantaging future home buyers with student loans.

charlie opler

President of the National Association of Real Estate Agents

Your monthly payment will also be included in your debt-to-income ratio, which lenders use to measure your ability to meet mortgage payments.

“There are limits to the percentage of your income that can be spent on paying off all debt, including student loans,” Kantrowitz said.

If you’re hoping to apply for a mortgage soon, you might want to consider switching to a plan that lowers your monthly bill. Income-based repayment plans, for example, often do. (Fannie Mae, the federal mortgage giant, made it easier for student loan borrowers to obtain a mortgage in 2017 by allowing lenders to consider lower payments on these plans.)

Kantrowitz recommends that borrowers change their repayment plan at least a year before applying for a mortgage.

Fortunately, owning a home won’t affect your monthly student loan payments on an income-based repayment plan, said Betsy Mayotte, president of the Institute for Student Loan Advisors, a nonprofit that provides borrowers with free student loan advice and dispute resolution. aid.

This is because the plans, Mayotte said, “are based only on income and family size, not on assets or other debts.”

Various government agencies, from the US Department of Veterans Affairs to the US Department of Agriculture, will use different formulas to calculate the weight of your student loans.

“It may be helpful to bring in a mortgage broker who works with all of the different government programs,” Kantrowitz said.

On the other side of the balance, if you are planning to buy a home soon, now is a good time to try and increase your income, “especially if you think you deserve a raise or a promotion,” say seniors. Said contributor Ellen Griffin Rubin and communications specialist at Advisors. Others may consider taking another job.

Experts say to avoid procrastination or owner-led tolerance.

Although they reduce your monthly payment to zero, they point to financial trouble for lenders, Kantrowitz said.

One important exception, he noted, is the current option to withhold interest-free payments that the US Department of Education has offered to borrowers since the start of the pandemic. (This break will end in January.)

“Eligible federal student loans are reported as up-to-date by all three national credit bureaus, so applying for a mortgage should have no impact,” he said.

If you’ve defaulted or are left on your student loans, it will be more difficult to get a mortgage, Kantrowitz said.

These borrowers may want to see if the parents can buy the house.

If the property is purchased through a trust, the child will inherit the house if the parent dies. (There are of course many ways to get out of the red and get your loan back.)

Another option is to apply for a mortgage with someone else. It will show higher income and you will also have another credit score to lean on.

“Borrowing a mortgage with your spouse can be worth it,” said Griffin Rubin. “If you are not married, your partner, family member or friend may be an option for you. “

Ultimately, if you’re having trouble finding a bank that will work with you, “the answer will be obvious,” said Griffin Rubin. “Focus on paying down the debt.”

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