Student loan company SoFi recently found that 61% of millennials said they have delayed buying a … [+]
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More than 44 million Americans hold nearly $1.5 trillion in student debt, and that debt is affecting the decision of millennials to buy homes.
Student loan company SoFi recently polled more than 1,000 millennials between the ages of 22 and 35 across the U.S. and found that 61% said they have delayed buying a home because of their student loan debt.
Similarly, a resounding 70% of respondents said they didn’t believe believe the benefits of living in a high-cost city like San Francisco or New York City outweighed the cost of living.
Julie Gans, an agent with Compass, says buying a co-op in New York City, which is generally more affordable than a condo, can be very difficult with debt.
“In the New York City market, unless the person is making a very large salary, it tends to be hard to purchase a co-op because co-ops like to see a healthy income to debt ratio,” Gans says. “So having large student debt sometimes makes it impossible to buy in the New York market.”
Svetlana Choi, a broker with Warburg Realty said the biggest issue, after debt, is the down payment.
At the same time, millennials might not be sure if they’re able to stay in a home long enough to make the large investment worthwhile.
“If they can commit to living in a specific area for a six- to 10-year period, then they might see the wisdom of owning versus renting and consider it as a more viable option,” Choi says.
Robert Rahmanian, principal and cofounder of REAL New York, agrees that student loan debt may postpone home buying for many millennials, but he believes it’s possible for those with a strong credit score who are comfortable taking on additional debt.
“We advise them to focus on having a good credit score as well as getting pre-approved for a mortgage with a lender,” Rahmanian says. “In this way, you can find out exactly how much you can afford to pay for a home.”
111 Montgomery, a 163-unit luxury condominium building in Crown Heights, Brooklyn, accepts a 5% down … [+]
Creative Soldier
Some new developments have kept millennial home buyers with student debt in mind.
At 111 Montgomery, a 163-unit luxury condominium building in Crown Heights, Brooklyn, with amenities that include co-working lounge spaces, has prices that start at $499,000 for a studio and accepts a 5% down payment upon contract signing, versus the standard 10%, if buyers qualify for 95% financing.
The building also works with Bank of America and First Republic to offer up to $10,000 cash towards closing costs.
Christine Blackburn of Compass, director of sales at 111 Montgomery, says the monthly carrying costs are “along the same lines of total monthly outlay for renting, factoring the tax write-off.”
“The challenge has always been how do you start” earning equity in real estate, Blackburn says. “This is the easiest entry into buying for buyers with excellent income with not a lot of savings.”