(Source: AZCentral): Catherine Reagor – Millennials overloaded with student loan debt now have a better chance of buying a home.
The biggest mortgage backers in the country have upped the amount of debt borrowers can have and still qualify for a home loan.
I cheer the good news for the many Millennials held back from a home purchase because of hefty student-loan debt. But then I worry about adding more debt to their load.
Government-owned Fannie Mae and Freddie Mac raised their debt-to-income ratios for borrowers at the end of July.
The debt limit has been upped from 45 percent to 50 percent.
“It’s a big change that can help a lot of people who didn’t quite qualify before,” Carisa Winklepleck of Scottsdale-based Homeowners Financial Group told me.
She said several people who couldn’t qualify for a Fannie or Freddie mortgage before have successfully qualified recently under the new debt limit.
Can you qualify?
How to figure out your debt-to-income ratio:
- Take your monthly income and figure out what percentage goes to your monthly debt.
- If you are bringing in $4,000 (gross income before taxes) and have debt payments of $2,000, then your debt-to-income ratio is 50 percent.
- Include student loans, car payments, credit-card bills and any future mortgage payments to tally your debt. Don’t forget the cost of food.
- With the $4,000 income and $2,000 debt scenario above, a borrower still likely wouldn’t qualify because it doesn’t include mortgage costs.
Debt climbs, homeownership falls
Since 2009, student loan debt has doubled to a record $1.4 trillion. At the same time homeownership among Americans between 28 and 30 has dropped, according to a recent Federal Reserve Bank report.
The Fed estimates about 360,000 more Millennials would have owned a house in 2015, if student loan debt was at the lower levels of 15 years ago.
It’s now easier for Millennials, first-time buyers and veterans to qualify for mortgages than it has been since the boom.
Some homebuyers taking out FHA loans can qualify with 55 percent debt-to-income ratios. The ratio for veterans getting VA loans can be as high as 60 percent.
No deja vu, please
A group of veteran real-estate agents recently told me they are a bit concerned that if loan guidelines get too easy, we could see people getting in over their heads again with mortgage payments.
That would be bad deja vu of the boom and bust.
“I do worry that the acceptable debt ratios on all our loans, even after the meltdown, are at all-time highs,” Jay Starks, a senior loan officer with Phoenix-based Bell Mortgage, told me.
“If your gross pay was $3,000 and you were spending $1,500 per month on debt obligations, you still have to cover taxes, FICA, medical insurance and utilities with the other $1,500,” he said. “It would be pretty tight for most folks.”
Many Millennials had to take out more student loans to pay for college as their parents lost home equity and jobs during the recession.
I am very sympathetic to their plight and look for ways to help my twenty- and thirty-something friends buy homes, particularly as metro Phoenix rents have soared.
I’ll be sending this column to several of them, with a footnote asking, “Please don’t get in too far over your head.”
And if they do buy a home, our next dinner or lunch is on me.