Shawn Manwaring's Blog

How Long Does It Take Buyers With Student Loans to Afford a Home?

Posted on September 26, 2018 by shawn_manwaring

With the exception of successful college dropouts like Bill Gates, Mark Zuckerberg and Lady Gaga most college graduates rake in more money over a lifetime than those who never finish their degrees. But those pieces of paper can come at a steep price: the dream of buying a home in the near future.

Graduates of four-year colleges who took out student loans are estimated to spend more than a decade saving up for a 20% down payment on their very own home, according to a recent report.

That’s nearly double the 5.3 years it is expected to take those lucky grads who didn’t have to take out loans to fund their education, according to an apartment list report. The reason? The debt-free grads can save more, to the tune of an average $350 a month, than those paying off those odious loans. They’re also more likely to have family and friends who can chip in for the costs of buying a home.

The rental website analyzed survey responses from more than 30,000 renters aged 18 to 34. The report factors in the financial assistance buyers will receive from friends and family to pay for a $200,000 home.

But it did not take into account the various no- or low-down-payment options available for U.S. military personnel (current and retired) and first-time and other eligible buyers. (First-time buyers often score 3.5% down mortgages through the Federal Housing Administration.)

Renters who earmark a chunk of their paychecks to pay down their student loans took almost double the time, 10.2 years, to muster up a 20% nest egg for the home of their dreams. The culprit: They save an average of only $230 a month.

“At least part of this is by choice,” says Apartment List data scientist Andrew Woo. “College-educated millennials with student loans could be saving more, but in many cases are choosing not to do so. They spend more on rent. They spend more on other expenses, which include travel, dining out, and shopping.”

More than half of college-educated millennials surveyed had student debt that resulted in a $410 average monthly bill. But before throwing them a pity party, keep in mind that they also earn about $22,600 more annually than those who don’t have those degrees gracing their resumes.

Renters without four-degrees are estimated to spend 15.4 years (!!) saving up for that 20% down payment.

The first hurdle for these higher education dropouts? They’re socking away an average of only $160 a month for arguably the biggest purchase of their lives. The second? They tend to receive less financial help from family and friends.

This makes buying in most major cities across the country next to impossible for many of these college dropouts, according to the report. They’re relegated to cities where it will take them less time to come up with a down payment, like Atlanta; Philadelphia; Kansas City, MO; and Detroit.

“Graduates without debt can pretty much afford to live anywhere,” Woo says. “Graduates with student loans can afford to live in most places except the West Coast and cities in the Northeast like New York, Boston, and Washington, DC.”

Categories: Buying Property
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