Student debt pushes homes out of reach, study finds - East Valley Tribune: Business

Student debt pushes homes out of reach, study finds

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Posted: Wednesday, August 29, 2012 7:29 am | Updated: 12:30 pm, Tue Sep 4, 2012.

College graduates typically earn more than non-college graduates over their lifetimes, yet the average 30-year-old who earned a bachelor’s degree in 2004 is most likely ineligible today for a home mortgage because of a high debt-to-income ratio.

“Denied? The Impact of Student Debt On the Ability to Buy a Home,” a report released by Young Invincibles, a Washington, D.C.-based organization, concludes that today’s college graduates are worse off financially than previous generations.

“Debtors who graduated in 2004 and start looking for a mortgage to purchase a home (in 2013) — the average age for home purchase is 30 — will face some difficult realities,” the report reads.

Based on economic data pulled from government sources, the authors estimate the typical 30-year-old college graduate looking to buy a home would need to spend about half of his or her monthly income on mortgage, student loan, credit card and car payments. That individual wouldn’t qualify for many home loans, including Federal Housing Administration mortgages, which have lower requirements.

Couples face possible rejection qualifying for a mortgage if even one of them has student debt.

The report shows “how rising student debt may lead to significant economic impacts,” said Rory O’Sullivan, policy director at Young Invincibles. “As education debt grows, it pushes more borrowers out of the housing market, potentially adding another drag to an economy only just emerging from the Great Recession.”

Mortgage lenders want to make sure borrowers don’t already have huge debt burdens relative to their income, so they use debt-to-income ratio to determine who qualifies for a home loan.

A couple who earns $3,000 a month but spends $850 a month on a mortgage, $50 on credit cards and $300 on student debt ($850 + $350 / $3,000) would have a debt-to-income ratio of 40 percent. They would barely meet FHA requirements that cap total debt payments at 41 percent of income, and they would not meet many conventional lender requirements, which usually are higher.

The report does not factor in other important considerations such as credit score or down payment.

This year, total student debt in the U.S. hit $1 trillion. An estimated two-thirds of the Class of 2010 carry an average burden of $25,250, according to the Project on Student Debt at the Institute for College Access & Success.

Young Invincibles was founded in the summer of 2009 by a group of law students at Georgetown University Law Center who saw a need to advocate for issues affecting young Americans.

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