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What is the Affect of Student Loan Debt On Homeownership?

by Jason Haeger
Millennial on scooter wearing hat and sunglasses looking up towards the blue sky

With student debt making headlines on a regular basis, and the rates of homeownership being lower, is there a connection? Maybe.

In the first issue of Consumer & Community Context, a publication from the Federal Reserve, an article by Alvaro Mezza, Daniel Ringo, and Kamila Sommer, Federal Reserve Board Division of Research & Statistics  entitled, “Can Student Loan Debt Explain Low Homeownership Rates for Young Adults?”, Mezza et al write,

While many factors have influenced the downward slide in the rate of homeownership, some believe that the historic levels of student loan debt have been particular impediments. Indeed, outstanding student loan balances have more than doubled in real terms (to about $1.5 trillion) in the last decade, with average real student loan debt per capita for individuals ages 24 to 32 rising from about $5,000 in 2005 to $10,000 in 2014. In surveys, young adults commonly report that their student loan debts are preventing them from buying a home.

and,

We found that a $1,000 increase in student loan debt . . . causes a 1 to 2 percentage point drop in the homeownership rate for student loan borrowers during their late 20s and early 30s.

In a study by the Federal Reserve in 2017, they found that every $1k in student loan debt postpones homeownership by about two and a half months. However, “postponed” is not the same as “canceled”! By time time higher education graduates reach their thirties, student loan debt has a reduced affect on rates of homeownership.

We have written before about the wealth-building power of paying a mortgage over paying rent, and student loan debt is similarly and investment into one’s career. The boosted earning potential of a generation of more college graduates is bound to catch up to the burden of the debt that helped fuel it.

Is it better to pay down debt, or to save for a down payment?

There is no one-size-fits-all answer to this question. No matter whether you have prioritized paying your student loan debt or saving for a down payment, if you would like to take a closer look at what makes the most sense for you, contact us. Our job is to work with you to find the right solution for your financial goals.

Find your Benchmark branch and contact them today for more information.Give us a call or contact us today. At Benchmark, we’ve got your back.Give me a call, send me an email, or request a call today. My team and I got your back.

Why Buying Is Investing

by I Am Benchmark

If you are thinking about becoming a homeowner, it is important to see your house as an investment. A home is an asset with the potential to  increase your financial stability over time. Unlike renting, where you pay your landlord’s mortgage without seeing any return yourself, homeownership works to broaden your financial worth. After purchasing a home, owners enjoy an increase in equity as they continue making payments, an increase in property value over time, and a growing net worth as a cumulative result.

 

You Are Paying Yourself

Purchasing a house helps you build equity. To figure out your equity in your house, subtract your loan’s principal balance from the market value of your home. For example, if your home’s fair market value is $256,000, but your remaining principal balance is $125,000, you have $131,000 ($256,000 – $125,000) in equity. This equity is available to you as collateral for major expense loans for financing your child’s college education, renovation projects, or paying off credit cards.

 

Asset Appreciation

The value of most purchased items does not increase over the period of ownership. On the other hand, a home is an investment that is likely to appreciate in value. A home’s value gains over time based on local real estate markets and the improvements made to it. If you decide to sell your home, you will could make a profit if the house value at time of sale is greater than the initial purchase price.

 

Low Initial Investment

Buying a house may appear to be a scary financial jump. Luckily, you do not need to use all of your savings to purchase a house. You can become a homeowner with just a low percentage (determined by credit and financial factors) of the home value needed for the down payment. While your regular payments are paying down the balance over time, the value of your property is probably rising. A short time into your investment, you will have a home that is worth more than what you paid for it at the time of closing. This equity gives you more financial security and an increase in your net worth.

 

Are You Ready To Own?

Buying a home can be stressful, but it doesn’t have to be that way with Benchmark. When you feel ready to purchase a home, find your branch. A loan officer will match you with the best loan for your financial needs.

Buying a home can be stressful, but it doesn’t have to be that way. When it’s time to buy a new home, give me a call or apply now. I’ll work with you to find the best loan type for your financial needs.

Buying a home can be stressful, but it doesn’t have to be that way. When it’s time to buy a new home, contact us or call your loan officer. We work with you to get the best mortgage for your financial needs.