Student Debt Can Torpedo Your Chances for a Home Loan

Student debt can adversely affect getting your first loan.

At we frequently encounter young clients who cannot qualify for a home loan due to high student debt.

“As students graduate with more debt than ever, those with student loans are getting worse credit scores and taking out fewer mortgages. At the same time home ownership rates among younger Americans sink to historic lows. College students who took out loans will graduate this year with an average of $33,000 in student debt,up an inflation-adjusted 32% from 2007, new research shows.

Debt among those who went to grad school is also up sharply. That, along with a jump in borrowers, has pushed overall student debt to $1.1 trillion, almost double the load in 2007, much of it at relatively high interest rates. The homeownership rate among those under 35, meanwhile, has fallen to 36.2%, from a high in 2004 of 43.6%.

Homeownership among Americans under age 35 hit the lowest level on record earlier this year, just as indebtedness among college grads notched a new high. Americans with student debt have seen their credit scores plunge as delinquencies rise, with the average score in the low 600s. Average credit scores on home-purchase loans stand in the mid-700s.

Anthony Hsieh, chief executive of, a California-based mortgage lender, cites as one complication new federal regulations that force lenders to be more stringent in assessing a borrower’s ability to repay. Lenders now weigh student debt more prominently in determining creditworthiness than they did before the crisis, he said.

Tiffany Reed, a Rock Springs, Wyo., veterinarian, says the $65,000 she earns each year gives her the means to pay down a mortgage, but tough lending standards have stood in the way. Three years ago, a lender rejected her because of her nearly $450,000 in student debt, including interest, mostly accrued at veterinary school.

So Ms. Reed, 33, bought a mobile home from an acquaintance, paying him monthly. ‘I was so surprised when I was turned down. I’m a doctor. I have a good-paying job,’ Ms. Reed said. She plans to make payments for an additional 25 years under the government’s income-based repayment program, then hopes to have the remainder forgiven.”

Wall Street JournalĀ  June 2014

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