Mortgage Blog

Student Debt + Mortgage = Homeownership?

Personal Finance

If you've watched any news lately, you've likely heard one of the presidential candidates mention the national problem of student debt. For some (looking at you Sen. Bernie Sanders!) it's more than just a slogan or a random policy, it's nearly a raison d’etre. That’s because Americans are holding almost $1.3 trillion in student loan debt, and roughly 43 million people carry some part of that burden. That’s an average of $37K per person, and that debt can seriously delay homeownership, particularly in an environment of rising home values. Put simply, lenders are more careful than ever, and one of the most common ways to determine a potential borrower’s ability to repay the loan is his or her “debt-to-income” ratio. When you add a tough job market with stagnant wages on top, it’s easy to see how that ratio can start to tip the wrong way. So what’s the solution? To this point, the solution for the mortgage industry has been simple: wait. And wait. As Millennials and Gen Xers begin to lower or fully replay their student debt, then homeownership starts to become more of a reality. However, that process can take years, and have other societal implications, such as delayed household/family formation and adult children living with parents for longer.

Hope may be on the horizon, and not from one of the presidential candidates. Regardless of what happens in November, this is an interesting concept that, if successful, could take off and revolutionize the housing market. Imagine if your student debt was not standing in the way of homeownership? That’s the proposal from an emerging mortgage firm whose target market is not exactly typical for the industry: debt-ridden college graduates. Their solution is to roll (or refinance) the student debt into the mortgage itself, and combine the two forms of debt. Initially, the program will be aimed at “jumbo” loans in the $425-600K range and borrowers with “top-tier work and academic profiles,” but within a year, that loan amount could fall to below $300K. National Mortgage News has all the details, including the loan specifics. 

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