The Domino Effect: What’s Stunting Student Debtors Now?
Forking over a hefty loan payment every month is tough enough.
But new research suggests that may not be the worst of it: Holding sizable student loans can now also make homeownership largely out of reach for recent grads, according to a RealtyTrac report.
That’s because of a measure called debt-to-income ratio, which lenders use to size up prospective buyers. In short, it’s the percentage of your monthly income that has to be directed to debt obligations, like student loans and a mortgage. Generally, lenders prefer not to see this ratio exceed 40%.
So naturally, if you hold a significant amount of college debt, you won’t be able to boast a low ratio to lenders—unless you’re bringing in a significant salary. In fact, the RealtyTrac research found that buyers saddled with student loans would need to earn as much as one-third more—close to $9,000 extra per year—than those without college debt in order to qualify for a typical mortgage. (The study assumed a maximum debt-to-income ratio of 43%, with a 20% down payment and a 4.13% 30-year fixed-rate mortgage.)
That’s tough news for many young grads, considering their average starting salary is $45,000—and the average student debt burden is now at $33,000, according to RealtyTrac.
Of course, while holding heavy student loans may make obtaining a mortgage more difficult, it doesn’t mean homeownership has to be impossible. Here, a mortgage expert shares her five favorite tips for securing a mortage—even with steep student loans.