Parents, grandparents and young adults know the problem only too well: Heavy student-debt loads, persistent employment troubles stemming from the recession – plus newly toughened mortgage underwriting standards – are all standing in the way of vast numbers of potential first-time homebuyers in their 20s and 30s.
But are there effective techniques that family members, friends, even employers can use to bridge the generational gap by offering a helping hand – without hurting their own finances in the process? You bet.
First, some sobering numbers:
• Citing Census Bureau data on homeownership by age, demographer Chris Porter of John Burns Real Estate Consulting calculates that Americans who were 30 to 34 years of age in 2012 – those born between 1978 and 1982 – had the lowest homeownership rate of any similarly aged group in recent decades, 47.9 percent. By contrast, Americans born between 1948 and 1957 had a 57.1 ownership rate by the time they hit the 30 to 34 bracket. This is despite record low mortgage rates and bumper crops of bargain-priced foreclosures and short sales.
• Debt-to-income ratios increasingly are mortgage application killers for would-be first timers. Adoption nationwide last month of a new federal 43 percent maximum debt-to-income ratio for “qualified mortgages” is particularly poorly timed for young purchasers. Because of large student debts, which average $21,402 but sometimes balloon into six figures, they may not be able to meet the 43 percent standard for years.
Typically they’re already paying out large amounts on credit cards, auto loans or leases and their student debt – about 30 percent of current monthly income for those 21 to 30 years of age as of 2012, according to a new research report from research economist Gay Cororaton of the National Association of Realtors. Factoring in the monthly cost of a typical mortgage for an entry-level purchase, the debt-to-income ratio as of 2012 for these individuals exceeded 60 percent, Cororaton estimates. Even with a 5 percent increase in income per year, they will not be able to qualify under the 43 percent debt-to-income test until 2019.
That’s a long time to postpone a purchase. Yet consumer research consistently finds that the overwhelming majority of Americans in their 20s and 30s would like to own a home, once they’re able to put together the financial pieces to make it feasible.