Debt-to-Income Ratio Keeps Millenials From Real Estate


Lost Generation: How Millennials Struggle to Qualify for Mortgages

Sep, 2nd 2016

As I get off the phone with my most trusted mortgage lender having gotten the news that yet another client wasn’t able to get approved for a mortgage loan, it hits me…Generation “Y” is in serious trouble.

With a census bureau population estimate of 75.4 million, “Millennials” as we’ve come to know this group of 18-to-35-year-olds have surpassed Baby Boomers as the largest living generation in the United States.

Millennials are interested in joining the housing market, in fact they’re savvy buyers with incredible knowledge at their fingertips. Thanks to online outfits like Zillow and Red Fin, these potential young buyers are changing up the real estate game by doing much of their own research. Despite being attracted to becoming homeowners however, many of them just simply can’t afford it.

The problem? It’s simple…Millennials carry too much debt.

Most Millennials are aware of their credit scores and the positive and negative effects it has on lending, but another important lending qualification is your debt as a proportion of your income. Your debt-to-income ratio (DTI) is all your monthly debt payments divided by your gross monthly income. The magical percentage in the mortgage industry is no higher than 43%.

As the cost of higher education rises, a college educated millennial has on average about $30,000 of student loan debt on their books. Add that to debts that burdens most people such as rent, car loans, credit card payments (to say nothing about child support, alimony and legal judgments) and millennial’s DTI in so many cases, has become too high to qualify for even a higher interest mortgage. As they are getting married, having children, they are wanting to lay down roots and establish themselves in safe communities with good school systems. They are also tired of paying rent and not seeing a return. Sadly, until we find a solution for the college debt crisis in our country, this generation will struggle to find traction in the real estate market.

As an optimist I am always resolved to see a glass as half full. Am I optimistic we can help this generation by providing a solution for this trillion-dollar student loan debt problem? Our federal government, which owns a grand majority of the student loans underwritten in the United States, must act now before millennials become the first generation of Americans to do worse than their processors.

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