With each election cycle there are a number of new “buzz words” or names given. For example in 1996, “Soccer Mom” became widespread referring to married, middle-class women who live in the suburbs and have school-aged children. In 2004, it was the “NASCAR Dad” that became prevalent referring to white, typically middle-aged, working-class men who had an unpredictable party affiliation. Now, in 2016, there is not one particular moniker that reigns supreme except maybe one… Millennials.
Millennials are people who typically have been born in the mid-1980s and through the early 2000s. This is often referred to as the cohort following Generation X. For millennials obtaining a mortgage has become quite burdensome, not because they do not necessarily want to buy a home, but because a considerable number have student loans. According to some research, “student debt is a pocketbook issue for the Millennial generation.”
Here is the part of the article where we include statistics to demonstrate how this struggle for Millennials is real… According to the National Center for Education Statistics, “For the 2013–14 academic year, annual current dollar prices for undergraduate tuition, fees, room, and board were estimated to be $15,640 at public institutions, $40,614 at private nonprofit institutions, and $23,135 at private for-profit institutions. Between 2003–04 and 2013–14, prices for undergraduate tuition, fees, room, and board at public institutions rose 34 percent
, and prices at private nonprofit institutions rose 25 percent
, after adjustment for inflation.” Due to this skyrocketing cost of tuition and fees, the need for student loans have equally skyrocketed. Coupled with this, millennials are graduating university or college with higher levels of debt and are employed at lesser rates. This strain has affected Millennials’ ability to buy homes and has limited their social mobility.
One key component for social mobility is seen in home ownership, which has decreased significantly among Millennials. Here is another stat that will put this into perspective… According to the Census Bureau, between the first quarter of 2005 to the first quarter of 2015 homeownership has dropped among Americans under age 35, from 43.3% to 34.6%. Because of student debt, borrowers willing to purchase a home often find it difficult or near impossible to be approved for a mortgage.
What are the true issues being faced by Millennials with student debt? The highest factors affecting Millennials with student debt are the increase of loan delinquency and problems of high debt-to-income ratio. Loan delinquency affects almost 30 percent of student loan borrowers currently in repayment. This makes mortgage approval much more difficult because this produces adverse credit history. Coupled with the strain that student loan payments have on the borrowers’ credit is the high-debt-to-income ratio prohibiting the client from being able to afford to make the monthly payments on a mortgage.
Another key factor pertains to Millennials ability to save for a down payment. Typically, borrowers with substantial monthly student loan payments find it difficult to save enough money for the down payment on a home. Because of this, an increasing number of millennials are moving back in with their parents after graduation to save money for larger expenses. Some more statistics (just for fun)… approximately 21 million 18- to 31-year-olds lived with their parents in 2012, which is up 18.5 million with same-aged counterparts just five years prior.  That is an increase of 2.5 million Millennials moving back in with their parents.
What then are the solutions for these statistics and struggles? The answer is simple, but the process can be the challenge for mortgage lenders. Here at Quicken Loans Mortgage Services, we want to be a help during this time for our partners and clients. For Agency, FHA, and Jumbo loans, the guidelines state that the client must be qualified with the GREATER of the actual payment reporting on the credit report, 1% of the outstanding balance, or $10.00. However, the caveat to this is if the client can provide documentation indicating the actual monthly payment will not increase and
will pay the balance off in full, the actual payment can be used.
As for VA loans, the guidelines require that the client be qualified with the actual payment listed on the credit report or monthly statement. If no payment is listed, the client must be qualified with GREATER of 1% of the outstanding balance or $10.00. However, if the student loans are in deferment and the repayment is scheduled to begin within 12 months of close, the payment must be included in the DTI. Otherwise, if repayment is not scheduled to begin within 12 months, the payment can be excluded from the DTI.
The key for each client is to take the time to gather the necessary documents to show the lowest monthly payment. Some clients may need to take additional time to refinance their student loans to lesser rates and terms before obtaining a mortgage. Regardless, owning a home for Millennials is not beyond reach, it just may take the time to complete the necessary stretching to reach their potential.