Where Can You Buy a Home While Carrying Student Loan Debt?

carrying student loan debtOne common myth about acquiring student loan debt is that it prevents you from buying a home. Although millennials are delaying home buying longer than any other generation in recent history, student debt surprisingly isn’t to blame. It’s true that carrying significant student loan debt can hinder savings for a down payment and cause your debt-to-income ratio to exceed a lender’s qualifications, but it barely reduces your odds of becoming a homeowner.

In fact, as long as you complete a bachelor’s degree or higher, the negative impact of your student loan debt on your probability of homeownership is negligible. Take for instance folks who graduate with a bachelor’s degree and no student loans. They have a 70 percent probability of owning a home. Others, with the same degree and $50,000 of student loan debt, have a 66 percent chance of homeownership. So, the debt only reduces odds of homeownership by 4 percent.

Even added debt from graduate school loans aren’t to blame. Truthfully, the higher the level of education the better insulated borrowers are from negative impacts of student loan debt. Despite the high cost of loans for further education, individuals with medical, law or doctoral degrees have the highest likelihood of homeownership while carrying student loan debt.

For example, if you earned a doctorate degree without acquiring any student loan debt, you have an 87 percent chance of owning a home. Add $50,000 in student loan debt and you still have an 84 percent likelihood of homeownership – a 3 percent change. A master’s degree jumps from 80 percent without loans to 75 percent with $50,000 in student loan debt. All that debt only equates to a measly 5 percent change in your odds of homeownership.

In actuality, student loan debt isn’t the cause for delayed buying rates among the millennial generation – the age of individuals who would likely be purchasing homes. Other factors like low inventory of cheaper-priced homes could be to blame. Many millennials are renting in city centers and purchasing property in the same popular locations. When you’ve calculated your housing budget, your savings for the down payment and monthly mortgage affordability you can see that affordable homes are likely outside of city centers.   

Beyond the effects of student loan debt, you should consider shopping for homes in the most affordable regions for your career path. The markets with the cheapest homes aren’t necessarily the most affordable for every worker, since wages are lower in markets with cheaper home prices.

For instance, teachers are best off buying in Bakersfield, CA earning a median salary of $61,000. Teachers there spend 22 percent of their monthly income on housing, establishing an affordable home price of $310,000. In Bakersfield, teachers can afford 86 percent of the homes on the market – excellent odds when shopping for homes. 

Alternatively, if you’re a teacher living in Provo, UT, your salary is much lower at $32,000 with the same housing expense of 22 percent of your monthly income. Unfortunately, teachers in Provo can only afford a home priced at $171,000. The cost limitation opens up just 24 percent of the for-sale inventory. Therefore, it’s much more limiting to shop for homes in Provo if you’re earning a teacher’s salary.

The same concept applies for the other occupations Zillow studied. Firefighters have the greatest affordability in Riverside, CA and the least in Charlotte, NC. Lawyers are best off in Buffalo, NY and worst off in Springfield, MA. Construction workers have the most luck shopping for homes in Buffalo, NY but few affordable options in Portland, OR. Food service workers have the greatest housing affordability in Las Vegas, NV and the least in Salt Lake City, UT.

Buying a home is a complex decision whether you’re carrying debt or working a low-paying job. Instead of continuing to pay steep and rising prices for rent, look into purchasing a home within your price range. Don’t let the burden of student loan debt scare you away from considering all your options.

About the Author – Tali Wee writes about finances, home improvement and interior design for Zillow

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