July 30, 2017

Student debt is first-time home buyer issue, but not always a barrier


Everyone has heard about how student debt is a millstone around the neck of Millennials blocking their path to home ownership. While there's no argument that today's young people will have a bigger education cost burden than their parents; there's another side to these stories.

2017 NETAR President

If you pay close attention to the doom and gloom stories, you will notice many of the faces put on the stories are students who graduated with advanced degrees. It should not surprise anyone that doctors and other career paths with eight to 10 years of study have student loans in the $100,000 to $200,000 range. However, what about the young men and women who earn an undergraduate degree in four or five years?

According to an analysis by the student loan report – a service that tracks student debt - most have a lower debt load that the six digits cited in some news reports.  That adds context to student debt discussions, just keep in mind that average debt per student includes those who did not borrow. So, the actual debt burden of students who did take out loans is higher.

Here's a how it looks at local four-year colleges:

A little over half (54%) of the East Tennessee State University undergraduates have student debt when they get their degrees. The average is $15,047.

Milligan College's average student debt is $18,187, and 67% of undergraduates have loans.

The average debt load at Bristol's King University is $18,537, and 87% of undergraduates exit campus with debt.

Seventy percent of Carson Newman's undergrads finish with an average debt of $18,795.

Tusculum's undergrads have an average debt of $26,717, and 84% of the student have loans.

No one is saying local undergraduates are not starting their post-college lives with a light load, but the local numbers show a different side of the student debt story. The point is much of the talk about how student debt makes it impossible for Millennials to buy homes is sometimes self-fulfilling. It scares some potential first-time buyers away from a market that they might be able to negotiate – even with an average student loan debt level.

For example, a common mistake is the assumption that buyers need a 20% down payment. Saving up that much while paying down student debt is a heavy lift. The good news is 20% is simply not the local down payment norm.

Here in the Tri-Cities region, the average down payment is a lot closer to 12%. And, there are many home purchases closed with 3% down payments. Some options require no down payment or come with grants.

For instance, the Tennessee Housing Development Agency has a very attractive program for first-time buyers in the 37660 zip code. The U.S. Department of Agriculture makes loans in many areas just outside the city limits that are a lot more attractive than commercial loans. Eastern Eight has a track record of working with first-timers and those who do not always fit the commercial mortgage model. Additionally, the Federal Housing Administration also has a variety of programs to help, and not all are solely for first-time buyers.

The comparisons of what it costs to rent vs. what it costs to buy are another spoke in the wheel.

The June average sales price for a single-family resale here in Northeast Tennessee was $165,832. With a 3% loan and a 30-year 4% fixed mortgage, a buyer would be looking at a monthly payment of about $760.

That is in the range about 34,500 local homeowners currently pay. It is also the price range that about 32,400 local renters pay. The difference is the owners will build equity and can eventually pay off the mortgage while rents go on forever and the landlord’s equity continues to grow.

Student debt is an issue for Millennials who want to be homeowners. However, there are options to mitigate it. Instead of thinking there's "no way" they would be better off exploring the options available to them, and then partnering with a professional Realtor® to begin focusing on the housing opportunities rather than putting off the next stage of their economic life cycle. Realtors® work with consumers to make sure they find a home that fits their needs and help them stay focused on both the emotional and financial issues that are most important.

Eric Kistner is the 2017 president of the Northeast Tennessee Association of Realtors®. The real estate education and trade group is the voice for real estate in the Tri-Cities and has over 1,200 local Realtor® members and over 100 affiliates