Why Can’t Graduates & Housing Market Get Together

August 28, 2012 / Russell Legato, Residential Property Analyst

It used to be that after finishing college, graduates & housing market opportunities merged. Some grads married and bought a house together. Others bought an older house as an investment. This is no longer happening with near the frequency it once did. They are apparently, a generation of young people who are not able to follow the pattern and buy a house a few years after graduation.

Why Can’t Graduates & Housing Market Get Together

One part of the reason is that most students get limited financial aid and must pay off their loans before they can think of doing anything else. Another is that wages are lower for a good number of them. There is more than one roadblock to them obtaining a mortgage. Banks take both wages and how much debt they are carrying into consideration. If they have a good credit rating, that is important, but it’s not enough. When too much salary is going to the student loan people, there may not be enough left to justify the bank approving the application.

Following the housing crisis mess the country is struggling to recover from, the banks are under stricter regulations in regards to mortgage loans. The calculations usually figure out the ratio of income to student debt and how much, percentage wise, will go to those loans. Then they consider other debt and how much living expenses are. By the time they are all added up, the banks find it impossible to merge the graduates & housing market and grant a mortgage loan.

It is almost impossible if a married couple applies for a loan and both have student loan debt. If only one of the couple has student loans to pay, that makes them less of a risk. If a single person has student debt, his or her chances are reduced. Even when the application is made to The FHA, they allow no more than 41 percent of an applicant’s income to be slated for paying on debt. The advantage to an FHA mortgage, if they can get one, is there is a smaller down payment required.

An entire generation not being able to buy a house will have an enormous impact on the housing market. It is in recovery now and the situation is starting to look promising. But, is there another blockade that will bring it down again?

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