Student Debt Holds Buyers Back, But Doesn’t Need To

Rising student loan debt continues to take blame for curtailing the number of young Americans from home ownership, but lenders and real estate professionals say it doesn’t have to necessarily be a deal killer in qualifying for a mortgage.

Home ownership is possible for buyers saddled with student loan debt, says John Wheaton, Redfin Open Book lender. “Many young people with student loans delay buying a home because they don’t think they can’t qualify for a mortgage,” Wheaton says. “Yet, many of them actually can. Underwriters generally treat student debt in a more positive light than credit card or auto loan debt.”

For example, Wheaton says that a person with $45,000 in student loans and a FICO score of 741 with an income of about $75,000 per year would likely qualify for a property starting at around $375,000 with a 5 percent down payment.

The National Association of REALTORS® recently reported that the share of existing home purchases by first-time home buyers has fallen to 26 percent of sales. Last year, the percentage stood at 30 percent.

Source: “Higher Education or a House: Can Young Americans Have Both?” Redfin Research Center (Feb. 24, 2014)