Correspondent Lending

5 Tips for Aspiring Homeowners With Student Debt

5 Tips for Aspiring Homeowners With Student Debt

Having come of age during the Great Recession, the millennial generation is cautious when it comes to major financial decisions. Those currently aged 25 to 34 are eight percentage points less likely to own a home compared to the two generations before them.1 One prominent reason—in addition to a generally risk-averse state of mind—is the rise of student debt, which has risen to $1.5 trillion in the U.S. alone.2 Millennials are shouldering the brunt of this; 65 percent of all borrowers are 39 are younger.2

This doesn’t mean, however, that homeownership should be years away. When armed with the right guidance, millennials can make a plan to pay off their debt and invest in their future. Here are some tips lenders can share to help put their millennial clients on the path to owning a home.  

1. Prioritize their credit score

Debt or no debt, a good credit score goes a long way toward pre-approval and, ultimately, the ability to secure financing at a competitive rate. Encourage your clients to strive for the 750 range on the FICO scale, which is typically considered “excellent” by creditors and lenders.3 Verifying all credit report activity, automating payments to ensure on-time delivery and working to lower debt-to-credit ratio can all help boost this important score.  

2. Look into student loan consolidation

Debt-to-credit (or debt-to-income) ratio is another major factor in loan approval; almost 20 percent of people with student loans who apply for a mortgage are denied for this reason.4 By consolidating student loan debts, potential borrowers may be able to secure a lower interest rate and be on a faster track to repayment.  

3. Explore down payment assistance

Saving for a down payment is challenging for everyone, even those without the added pressure of student loans. Let your customers know about potential down payment assistance programs from the government, such as FHA loans or VA loans, for those who have served in the military. The Department of Housing and Urban Development is a good place to start.

4. Learn about recent rule changes

In 2017, Fannie Mae announced policy shifts to make it easier for those with student debt to own homes. This change in how education loans impact debt-to-credit ratios may help improve your prospective customers’ borrowing chances, while non-mortgage debts being steadily paid by others (e.g., the borrower’s parents) will also not be included in this calculation.5

5. Consider up-and-coming locations

When it comes time to look at properties, it’s all about location, location, location … but not in the traditional sense. Concentrating on more affordable, less in-demand locations can drastically lower a potential homeowner’s budget and may increase the likelihood of loan approval.

Saving for a home while paying off student loan debt isn’t ideal for everyone, but it also isn’t impossible. And providing valuable tips—while remaining straightforward and transparent—is the best service you can offer clients in this situation.

Help your customers achieve confidence 

Learn how the SunTrust Correspondent Lending team can work with you to connect with your clients.

1 “Why aren’t millennials buying houses?” July 11, 2018, Curbed

2 “Student Loan Debt Statistics For 2018,” 2018, Make Lemonade

3 “750 Credit Score,” Dec. 28, 2015, WalletHub

4 “Why buying a home can be almost impossible with massive student loan debt,” April 19, 2018, CNBC

5 “Fannie Mae mortgage loans: 3 important changes coming,” Oct. 31, 2017, USA Today

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