First-time home buyers in Charlotte face student debt hurdle



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It’s not just rising prices and falling inventory that are weighing on first-time home buyers. Many come to market with an additional hurdle: student debt.

Although buying a home is often an important way to build wealth, heavily indebted young buyers can be shut out of the market.

A federal reserve report published in 2019 found “a $1,000 increase in student loan debt…results in a 1-2 percentage point drop in the homeownership rate for student borrowers in their late 20s and in their early thirties.

The same report estimates that “about 20% of the decline in homeownership among young adults can be attributed to the increase in their student debt since 2005”.

These loans put a strain on the buyer’s debt ratio and affect the amount of loan they qualify for. Diminishing purchasing power may be a headwind as home sales prices continue to climb in the Charlotte metro area, where the the median sale price exceeded $340,000 last month.

The average Charlottean with student loan debt had a balance more than $37,000 last year, slightly more than the national and national averages, according to an article from the Student Loan Hero site of Lending Tree. The data came from both anonymized credit reports and federal sources. The report found that Mecklenburg residents pay around $310 in student loans per month, on average.

“Roadblock”, but not impossible

Student debt can be a “barrier” to homeownership for many, said James McDuffie, community lending manager for the Mid-Atlantic region of US Bank.

“We see that a lot with this younger generation,” especially the under-30s, he said. “They have a solid income, a great job (and) a lot of savings, unfortunately they have this debt.”

Student loans were definitely on Grant and McKenzie Toth’s mind before closing their first home in the Windsor Park neighborhood earlier this year.

Their debt did not prevent them from obtaining a loan. The couple, who both work in healthcare, were buoyed by other positive factors, including strong credit ratings, Grant said.

“Naturally that’s going to limit your budget and what you can afford,” he said. “My wife is a doctor and we are going to be in debt all our lives.”

He said they made sure to factor their $1,200 to $1,500 monthly payments for their combined student loans into their budget.

“Previous generations never had these kinds of loans for schooling,” he said, calling it an important consideration when submitting an offer and non-refundable due diligence payment.

“We really wanted this house,” he said. “We didn’t want to lose our due diligence because we were misinformed and found out you can’t afford it because you have too much debt.”

McDuffie said the burden of college debt weighs particularly heavily on black borrowers, who leave school with larger loans than their white counterparts, shows esearch. Debt also increased for Asian and Latino borrowers.

“They’re getting really good grades, they’re getting good jobs, and they want to buy a nice house,” he said. “But when they come to talk to us, we’re limited because of the hundreds of thousands of debts they have.”

Ongoing changes

In June, the Biden administration announced that the Federal Housing Administration would change its loan calculations when it comes to student loans. He will no longer use 1% of the borrower’s outstanding loan in his formula but rather the actual monthly payment.

Officials with the US Department of Housing and Urban Development said the change would lower barriers to homeownership, especially for minority buyers.

“Homeownership is the cornerstone of the American Dream and the best way to build generational wealth,” HUD Secretary Marcia Fudge said at the time. “This new policy will make a big difference for individuals across our country and is another step in our mandate to promote equity and homeownership opportunity.”

This story was originally published July 29, 2021 06:00.

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Lauren Lindstrom is a reporter for the Charlotte Observer covering affordable housing. She previously covered health for The Blade in Toledo, Ohio, where she wrote about the state’s opioid crisis and lead poisoning in children. Lauren is a Wisconsin native, a graduate of Northwestern University and a 2019 Report for America Fellow.
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