Will Student Debt Keep You From Buying a Home?

Many adults dream of becoming homeowners one day, but some buyers may have to wait even longer to get their names on a mortgage -- if they can manage to do so at all. According to the Federal Reserve Bank of New York, the number of people who purchased homes by age 30 dropped from 31% in 2004 all the way down to 21% last year . And a big part of the reason boils down to student debt.

In fact, college loans accounted for up to 35% of the decline in homeownership among 28- to 30-year-olds between 2007 and 2015. Incidentally, they also explain why millions of Americans have a negative net worth, a phenomenon achieved when one's outstanding liabilities outweigh his or her assets.

Because more people are taking on larger levels of student debt, they owe more than what they're able to accumulate in savings or investments. And if they're spending a significant chunk of their earnings on student loan payments, they're apt to have a more difficult time socking money away for a down payment. Additionally, since renters can't claim equity in their homes, they're more likely to get stuck in a negative net worth situation than property owners whose home values have the potential to climb.

Of course, just because you borrow money for college doesn't necessarily mean you won't manage to buy a home at a younger age, or at all. But it does mean you'll have less available income to save for a down payment, and less financial flexibility earlier in life, when those loan payments are bound to come due. Furthermore, since not all borrowers fall under the classic 10-year repayment period that applies to federal loans, it could very well be the case that if you take on debt for college, you'll be paying it off well into your 30s, 40s, 50s, or even beyond -- which makes homeownership that much less viable.

Benefits of homeownership

Let's be clear about one thing: Though there are many good reasons to become a homeowner, it may not be the right move for you, regardless of how much student debt you happen to have accrued. But if you are hoping to become a homeowner, you should know that the sooner you do, the more tax benefits you'll get to enjoy. In addition to mortgage interest, you're allowed to take a tax deduction for property taxes, points on your mortgage, and PMI (which applies if you don't manage a 20% down payment on your home). Furthermore, if you're self-employed and work out of the house, you may be eligible for a home office deduction, which can be used to offset your income and save you a bundle.

But tax breaks aside, owning offers a real opportunity to turn your housing costs into an investment, as opposed to just an expense. If you manage to buy a home in an up-and-coming neighborhood for $300,000, and its value quickly climbs to $450,000, you'll have a nice little profit on your hands. That's not something renters can claim.

And this is why it pays to consider the consequences of borrowing too much for college. Not only will those pesky loan payments eat up a chunk of your income, but they also might cause you to delay homeownership and the benefits that come along with it.

In addition, while there's no such thing as being too old to sign a mortgage, the sooner you get one, the better. See, most borrowers opt for a 30-year loan, and figure they'll just make their 360 payments as scheduled. But if your goal is to pay off your home in time for retirement (which it should be, ideally), then you'll want to get that mortgage locked in by your mid-30s at the latest. Otherwise, you could end up carrying mortgage debt well into your 70s or later.

Keep that borrowing in check

While there's no hard-and-fast rule about how much to borrow for college, it stands to reason that you'll have an easier time repaying a $10,000 loan than a $40,000 loan. So if you have the option to reduce your college costs or to borrow less, go for it. This could mean commuting to school rather than living in a dorm or working an extra job during your lighter semesters to cover more of your costs up front. It could also mean opting for an in-state public college over a private one, which could save you roughly $24,000 a year on tuition alone. While buying a home may not be the only thing you'll have to postpone or give up if you take on too much student debt, it's a major life goal to factor into your borrowing decision -- before you sign that loan agreement.

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