If you’ve spoken to your own grown children or employees about it then you know it’s hard for young people to buy homes at the moment- mostly because of student loans. Roughly 43 million Americans are carrying student debt ($1.4 trillion nationwide). and 71% of student loan borrowers stated those loans as a reason they’ve delayed buying a home.
It’s important for young adults to understand that finding and buying the right house can be a huge gain for your future. It may seem scary but if you do your homework and work with knowledgeable professionals you will make the right decision.
There was a young couple attending grad school at CalTech. They were hoping to buy a house, and were outbid constantly, until they were able to purchase one in late 2009 for $392,000.
They thoughtfully fixed, repaired, added a bath, remodeled the kitchen, painted, built a deck and vegetable garden. They worked hard and gave it a lot of personality on a tight budget.
The home after their remodels
When they decided to move to Europe, we were able to list the home in late 2014 for $465,000. Well, 15 offers later, it sold at $581,000. It was a great start for a young couple just entering the housing market, and we hope these new laws will make it easier for others in a similar situation to purchase a home.
The home ownership rate for Americans under 35 is at the lowest it’s been in decades. We all know someone who has children living at home much longer than expected. Or, young couples who are forced to rent for many years because they’re unable to get a housing loan.
Luckily, the government has started to realize how much student loan debt is affecting Americans’ ability to purchase homes. Fannie Mae has stepped in to make changes. New rules, which went into action at the end of July, will make it easier for student loan borrowers to purchase a first home or do a “cash-out” refinancing to pay off student debt.
Many borrowers ran into problems with their debt-to-income (DTI) ratio, where high loan amounts kept them from mortgage approvals. There was a mandatory 1% calculation rule that required borrows to list the whole debt when applying for a loan,. As a result, many borrowers’ debt ratios were pushed beyond most lenders’ underwriting limits.
Now, actual monthly payments, as reported to the credit bureaus, will count toward your debt-to-income (DTI) ratio calculations. So if the payment is $500 a month but they’ve been reduced to $100 through an “income-based repayment” plan, only the $100 will be added to the monthly debts for DTI purposes.
This can be the difference between having enough to pay for a mortgage, and not.
if you have student loan debt for your own children, it will be easier to refinance. Another part of these new rules is the cost of “cash out” refinancing has been lowered, provided the extra cash you pull out from your equity is used to retire your student debt.
These rule changes should be a big gift to all the young families out there with student loan debt who are looking to purchase a home.
Posted on 10.01.17