Student Loan Debt Is Beginning To Affect The Housing Market As Millennials Hold Off Buying Real Estate

Student loan debt is starting to affect the housing market and that should be no surprise. Millennials are reluctant to buy their first home until they finish paying off their student loan debt.

A National Association of Realtors report finds that 83% of Millennials cite student loan debt as the reason.

Almost 30% of the Millennials who do own a home say their student debt prevents them from selling. Among first-time home buyers, 40 percent still have student loans.

Millennials on average owe $41,000 in student loan debt. The survey also shows that half of the millennials surveyed say they delayed a major life event due to their debt. The total American student debt load is over $1.4 trillion. The median annual income of the respondents was $38,000.

Fannie Mae is Trying To Solve The Student Loan Debt Problem

Federally controlled mortgage underwriter Fannie Mae has recently outlined changes that allow lenders to qualify potential borrowers with student loan debt.

Fannie Mae is allowing for part of the student debt be excluded from income-to-debt calculations.

Fannie Mae’s website states:

If the lender obtains documentation that a non-mortgage debt has been satisfactorily paid by another party for the past 12 months then the debt can be excluded from the debt-to-income ratio.

This policy applies regardless of whether the other party is obligated on the debt.

This also allows borrowers to purchase a more expensive home or will allow them to more easily qualify to buy an entry-level home. 

Student Loan Debt Refinancing

The policy change also allows lenders to refinance existing loans. The program would allow borrowers to apply home’s equity to pay off student loan debt. This similar to a debt consolidation loan. Fannie Mae says this will allow current homeowners to increase their monthly cash flow.

Rohit Chopra of the Consumer Federation of America (CFA) says the policy may help those with solid income and stable employment. Yet, some borrowers may be signing away their student loan benefits if times get tough.

CFA also says the policy change has the potential to make a difference in the mortgage market.