There are three major ways student loans can have a drastic impact on ability to own a home. The first is debt-to-income ratio. Most mortgage officers want your expenditures to be less than 36% of your income, and expenditures include student loan payments. Though those with a college education tend to make more money, because student debt can reach such high numbers, about 20% of applicants with student loans can’t meet this requirement.
Another is credit score. Currently, about 8% of borrowers are denied mortgages due to their low credit scores, and about 40% of those with student loan debts are expected to default on their loans by 2023. Once the debt stops being paid, credit score plummets, and it becomes near impossible to qualify for a loan.
The last barrier is down payments. Even if student loan borrowers have enough income to make the payments on time, often they aren’t able to save much — if any — of their yearly income. They aren’t able to pay the lump sum required for a down payment.
The result: well over 50% of current graduates with student loans will not be able to purchase their own home for decades. This exacerbates the strain currently impacting rental availability, and further disrupts housing markets.