Housing’s Big Challenge: $1 Trillion in Student Debt

Isaac and Stephanie Adams live in Richmond, Va. and are expecting a baby in June; last year they decided to buy a house. With home prices and mortgage rates both at historic lows, it seemed the perfect time. Unfortunately, student loans stood in their way.

“We were looking at the market going, ‘oh my gosh, the market is awesome right now. We can get some great house that our payments will be, our loan will be great to set us up financially well for our growing family,’ and we just weren’t able to do it, take advantage of that,” Stephanie said.

Between the two of them, the Adams’ student loan debt tops $100,000. They pay $1100 a month for the loans, and that, coupled with the fact that Isaac was working a contract job, was enough to disqualify them from getting a mortgage.

Their story is getting ever more common, as total student loan balances nearly tripled between 2004 and 2012, according to a new survey from the Federal Reserve Bank of New York. Now $1 trillion in collective student loan debt is directly affecting the housing recovery.

“Short term, you see a decrease in the number of first-time home buyers,” said Brian Coester of Coester Valuation Management. “You’re going to see somebody who would have been able to afford a more expensive house maybe go for the lower version or the downgraded version.”

First-time home buyers usually make up over 40 percent of the home buying population, but their share has hovered at or below 30 percent during this recovery, according to the National Association of Realtors. The student debt burden has kept many potential buyers out of the market, either forced to rent or to move back in with their parents, like Sophia Chaale.

“Without the student loan debt, a year and a half, two years earlier would have been the time I could have afforded to buy a house, and probably something a little bit bigger,” Chaale said.

Chaale is facing $60,000 in student loans from graduate and undergraduate schools. She is paying $320 a month on a 30-year loan. Only after living at home for two years was she able to apply for a mortgage and put a down payment on a home. She is scheduled to close at the end of April.

“I consider myself lucky that I had a place where I could save, but what about other people who aren’t originally from this area, who have to pay an extra $1500 a month in rent, and that rent money is not going to savings. How are they going to be able to save up or even to make that transition from renting to owning, in addition to all the student loan debt?” Chaale wondered.

For more information visit http://www.mortgagessiny.com

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About mortgagelendingstatenisland

I am a mortgage banking veteran with over 15 years of experience at every level of the mortgage arena. I am known as the "closer" because of my troubleshooting skils and ability to explain in detail to my clients and business partners "What Makes A Mortgage Approvable".

Posted on April 8, 2013, in Uncategorized. Bookmark the permalink. Leave a comment.

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