If you’re currently attending college, or have recently graduated, there’s a pretty good chance that you’re in debt. According to the most recent statistics, the average college student graduates with $37,000 in outstanding student loan debt – and that figure rises each year. That’s one of the major reasons that today’s college graduates have the lowest rate of homeownership since the Great Depression.
It is easy to understand. After all, the average student debt is greater than the average down payment on a home, so recent graduates aren’t in a great position to buy right away. Many delays purchasing a home until marriage, and on average aren’t even doing that until they approach 30. It has started to seem that home ownership is set to become an unattainable part of the American dream for an entire generation. There are some, though, that is on a mission to change that.
Banks Beginning to Adapt
Right now, the U.S. housing market is red hot, despite the younger generation remaining largely on the sidelines. That doesn’t mean, however, that everyone in the industry expects it to stay that way. They’ve already seen other global housing markets grapple with the very same problem and are hoping to take preemptive action to attract younger buyers into the market. One place that they are looking to draw inspiration from is the United Kingdom, where homeownership among college-age citizens has historically been low.
According to UK mortgage broker Habito, some of the nation’s building societies (akin to credit unions in the US) created programs that offered loans of up to 100% of a home’s value for certain college students seeking to purchase homes. For those that qualify, the programs offer the possibility of actually turning a profit on the home while they complete their studies. Here in the US, some local lenders are rolling out similar programs in the hope of increasing homeownership rates among younger Americans.
Government-backed lenders like Fannie Mae are also beginning to offer programs aimed at potential homebuyers burdened by student debt. They’ve rightly recognized that carrying student debt makes coming up with down payments difficult, and that standard mortgage debt-to-income (DTI) ratios are too restrictive for younger buyers. The HomeReady mortgage program offers a solution for those in that difficult position.
With a HomeReady mortgage, buyers can have a DTI up to 50% in certain circumstances and can qualify for a mortgage with only a 3% down payment. Critically, the program also has no restrictions on the source of the downpayment, which means that recent grads have the option of getting help from family members to come up with the lump-sum they need. Interested applicants need only have a credit score of 620 or higher, which shouldn’t be a problem for any responsible borrower.
Turning the Tide
It’s too early to tell if the market’s adjustments will reverse the low homeownership rate among college students and recent graduates over the long term, but the early results seem promising. At the beginning of this year, reports indicated that the rate had been increasing, but not for long enough to discern any real trend. The good news is that now, for the first time in a long while, there’s a real chance that the current generation may not be the first one to be forced to abandon owning a home as a part of the American dream. That’s good news – and we can always use some more of that.