Student loan debt is another challenge for first-time homebuyers

TEXARKANA — Local mortgage experts say student loan debt is making it harder for young buyers to find good deals in the Texarkana area.

With steadily rising mortgage rates, low housing inventory, and high-priced homes already plaguing the market, student loan debt adds to an already long list of hurdles for those trying to purchase their home. first house.

Jay Davis, vice president of State Bank and a member of the city council of Texarkana, Texas, said there are three main ways first-time home buyers are affected by student loan debt: It limits the purchasing power, limits the number of homes in their price range and prevents them from qualifying to buy a home.

According to the Federal Reserve, nationally, the average person with federal student loan debt has about $37,000 in debt. The Texas A&M University’s Texas Real Estate Research Center reports that student loan debt can eat up between 3.3% and 10.9% of the average income of a Texas college graduate, making it more difficult to get a job. a home loan or savings for a down payment.

Davis said lenders are required to include a 1% debt payment in calculating a buyer’s monthly debt-to-income ratio, which can reduce a person’s purchasing power by up to 46,000. $.

“In the Texarkana area, we have 98 homes listed under $200,000. If you take that $46,000 buying power off and you take the number of homes listed at $154,000, that reduces the number of houses they could be entitled to 58. That’s 40 houses less,” Davis said.

On average, a household earning $50,000 may need just over two years to save the down payment on a $217,000 home, according to the Texas Real Estate Research Center. However, this rises to six years if the household supports the average student loan payment.

In a 2021 survey by the National Association of Realtors, 60% of non-homeowner millennials (ages 26-41) cited student loan debt as a barrier to buying a home. Two-fifths of millennial homeowners said student loan debt set their home purchases back at least three years.

Debra Moore, senior vice president of Commercial National Bank, said about 15 to 20 percent of first-time home buyers she sees trying to get a home loan are dealing with student debt.

She said many first-time buyers are unaware that additional debt should be included in the debt-to-equity ratio, even if deferred.

“Unfortunately, many homebuyers don’t know what their required payment is once it comes off the deferral, so we have to count 1% of the balance toward the debt-to-equity ratio,” Moore said. “Usually the required payment is lower. So if the home buyer got the required payment amount, it would usually be lower. So we ask them to try to find out what it would be, even if it’s in deferred.”

Davis said most loan programs require the debt-to-income ratio to be below 45%.

“That’s going to come into play whether someone qualifies or not, with that student loan debt.”

Davis said the cost of attending a four-year local institution option like TAMUT is quite low, which reduces some of the student debt for those who stay home and go to school. . The cost of participating in TAMUT is about $18,000 per year, Davis said.

“You envision being able to graduate from A&M-Texarkana for less than $75,000. And that’s if you didn’t qualify for scholarships or something. I think TAMUT did a great job of keeping costs as low as they can for local students. Texarkana College has also done a phenomenal job,” he said.

As the pause on federal student loans ends Aug. 31, Davis said her best advice to a first-time homebuyer with student loan debt would be to contact a mortgage expert and allow them to explain the process.

“There’s so much misinformation on the internet, and there’s so much misinformation, even word of mouth, that a lot of first-time home buyers or college graduates don’t even look to see if they qualify. And each person is going to have to figure out if it’s the right time for them to rent or buy a house,” he said.

He gave some advice to people who are about to have to start paying off their student loans:

• Contact your student loan officer to ensure they have your up-to-date contact information

• Make sure your debit/credit card has not expired on your account

• Consider repayment or consolidation options

Moore also recommended consolidation options.

“That’s usually what a lot of those with student debt have managed to do to reduce that payment,” she said.

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