Student Loans – A Major Barrier to Homeownership in The United States
In the 1990s, Ed McKinley fell in love with an absolutely gorgeous $65,000 house situated by a lake in New Hampshire. The owners of the property were kind enough to let him move early and pay rent until the purchasing process was completed. McKinley, being all excited, installed a modern stove, changed the floorings, and repainted the walls.
And then there was some bad news! The mortgage company denied his approval as they thought his income-to-debt ratio was higher than what they were comfortable with. In reference to his federal student loan debt, that was somewhere around $34,000. Unfortunately, he was forced to leave the house.
If McKinley’s story sounds somewhat familiar to you, you would totally agree that student loans are a major hurdle in the way towards homeownership in the US. As per statistics, more than 80% of people aged 22 to 35 have a student loan on their name, which is why they haven’t been able to purchase their own house, and they blame their loan for the same.
But why is it that a sum that’s meant to facilitate their education turns into a bottleneck when it comes to other phases of their lives?
Reason 1 – Credit score
According to the National Association of Realtors, 8% of student loan holders are denied a home loan because of their poor credit score. Mike, a government employee in Oklahoma states, banks used to line up at his law school to offer loans.
Tempted, he did take a couple of loans before he’d even graduated. When he completed school in 2008, he had a debt of about $200,000 on his shoulders with no way to make the hefty monthly payments. He couldn’t find a job and later was defaulted on his student loan.
He felt completely hopeless and his credit score dropped to 500, which is supposed to be considered very low. This happens with a lot of people who become indebted even before they start earning. So much so that they eventually default and end up with poor credit scores. End result – denied mortgage applications!
Reason 2 – Down payment
Another major problem why people with student loans aren’t able to buy a house is lack of savings. Most are not able to save enough because a huge chunk of their income goes to the bank as monthly installments.
Stephanie Pennycuff, who works with a non-profit organization, mentions that almost one paycheck goes to loans every single month, and after that whatever amount she’s able to save goes down into something or the other. Meaning, she can’t save any money to purchase her very own house.
Reason 3 – Low debt-to-income ratio
As highlighted in McKinley’s story, a significant portion of people who have student loan debt get denied when they apply for a mortgage because of their poor debt-to-income ratio. The banks look at them as unsecured payers, which means they believe such people owe more than they make.
In the event such people need to choose between paying a mortgage installment and a student loan installment, they’ll obviously pick the student loan since they might tolerate forfeiture of the house but not of their education.
All in all
Concern around this whole labyrinth of people with student loans not being in a position to buy a house are growing at a steady pace. We agree that the primary way to build wealth and attain stability is if you own property under your signature, but considering the current scenario, student loans are continuing to compound and the dream of buying a new home seems somewhat endangered for most Americans.
More in Life Hacks
-
`
What Does Gen Z Look for in Movies & TV Shows?
There is something distinctly different about the way Gen Z consumes content. Their preferences on screen are more than just entertainment....
December 7, 2023 -
`
Family Wellness Escapes: Prioritizing Parents Well-being in Travel
In the hustle and bustle of family life, parents are stepping up their travel game, and it’s not just about the...
December 2, 2023 -
`
How to Turn Your Everyday Into a Special Day
Do you ever feel like your days are slipping away, blending into an unremarkable blur? We have all been there. But...
November 20, 2023 -
`
What to Do If You Can’t Afford to Pay Your Energy Bills
All of us had that moment when opening the dreaded envelope made our heart race a tad faster. That cringe-worthy moment...
November 18, 2023 -
`
Celebrity Feuds: Taylor Swift vs. Scooter Braun
Pop culture has always been flavored with a touch of intrigue – and there is nothing more riveting than a good,...
November 9, 2023 -
`
Parenting | How to Raise a Committed, Hardworking Child
Parents navigate the intricate path of supporting their children’s academic and personal growth as the new school year begins. For some...
October 31, 2023 -
`
Everything You Need to Know Apple AirTags
There is something oddly satisfying about the universe of Apple gadgets: Just when you think they have reached the peak of...
October 28, 2023 -
`
Buying a New House With $100k Salary? Here Are the Top 8 Places to Move to
So, you are raking in a cool $100k annually and have your sights set on planting roots and buying a house?...
October 19, 2023 -
`
Celebrities We’re All Hoping to See Making a Grand Comeback
There is a certain nostalgia that strikes when you hear an old favorite song on the radio, instantly transporting you back...
October 12, 2023
You must be logged in to post a comment Login