Millennials: Buying a Home in Washington With Student Loan Debt

Published:
February 25, 2018
Last updated:
November 12, 2021
In This Article

According to a report published last year, a lot of millennials in Washington State and nationwide feel that their student loan debt is preventing them from buying a home. But in many cases, this is only a perceived obstacle.

This article explains how student loan debt can affect millennial home buyers in Washington, and which financing programs might be well suited for this group.

Report: Student Loan Debt Deters Home Buyers

In 2017, the National Association of Realtors® and American Student Assistance® jointly published an insightful study entitled “Student Loan Debt and Housing Report 2017.” This report was based on survey responses provided by student loan borrowers who are still repaying their debt obligations. It zeroed in on millennials in particular.

Terminology note: Most sources define a millennial as a person born between 1984 and 2004, but there are other definitions as well. The NAR report broke it up into two groups: “younger millennials (born 1990 to 1998) and older millennials (born 1980 to 1989).”

According to this report, a lot of would-be home buyers who fall within this age range say that their student loan debt is preventing them from applying for a mortgage loan and buying a house.

To quote it directly:

“Among non-homeowners, 83 percent cite student loan debt as the factor delaying them from buying a home. This is most frequently the case due to the fact that the borrowers cannot save for a downpayment because of their student debt.”

While it’s true that having too much debt could lower a person’s chances for getting a mortgage loan, the mortgage industry is actually more flexible today than a lot of people realize. So, if you’re a millennial with student loan debt — and you’d like to buy a home in Washington — you owe it to yourself to speak with a loan officer about your financing options.

Two Ways It Can Affect Home Buyers

Student loan debt can affect mortgage applicants and home buyers in a couple of ways:

  • First of all, it adds to your total debt load. Banks and mortgage lenders consider a borrower’s current and projected monthly debts, as it relates to monthly income. This is aptly referred to as the debt-to-income ratio, or DTI. Having a DTI above a certain level could make it harder to qualify for a mortgage loan.
  • Secondly, the monthly payments associated with a student loan could make it harder for some millennial borrowers to save up enough money for a down payment on a home purchase in Washington.

Regarding DTI Ratios: It’s true that having too much debt (relative to your income) might affect your ability to obtain mortgage financing and buy a home. But the rules for DTI ratios can vary depending on the type of home loan being used and other factors. Some mortgage programs set the limit somewhere around 43% to 50%, as far as the total debt-to-income ratio. But there are exceptions in some cases, particularly for borrowers with “compensating factors” like a good credit history.

Regarding down payments: Surveys have shown that a lot of would-be home buyers believe they have to put down at least 20% when buying a house. Perhaps this is why a lot of millennials in Washington who carry student loan debt feel that they cannot save for a down payment. But there are low-down-payment mortgage options available these days that could benefit many people within this group. Conventional and FHA home loans offer down payments as low as 3% and 3.5%, respectively. And the money can come from a third party, in the form of a gift.

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Need a Home Loan?

Do you have questions about home loans? Are you ready to apply for a mortgage to buy a home? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs to buyers all over the Pacific Northwest. Contact us today with any questions you have about mortgages.

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