One reason for purchasing a home with less square footage: your children will not come home after college and live with you. While I have heard that you do indeed miss your children when they go away for four (or so) years, I’ve also heard that sometimes they’re a bit more challenging to dwell with when they re-enter your home, either temporarily during the holidays or more permanently, due to some habits they may have picked up while on their own. Heaven help me with boys!
You’ve also heard the common story that more and more young adults are living in their parents’ basements or renting because they’re having a tough time qualifying for a loan to buy a home on their own. There’s a couple of reasons for this, which may change soon due to new legislation. The two primary hurdles to home ownership that young people face are high student loan debt and tough rules related to using FHA loans towards condominium purchases, which are often the only type of home purchase they can afford out of the gates as well as the only type of loan they a can get due to low down payment requirements.
As far as condos go, a new rule is under the Office of Management and Budget (OMB) for review. This new rule will help make condo financing easier to obtain, ease owner-occupancy and commercial-space ratios and make it easier for condominium boards to get certified by the federal government each year to accept FHA loan financing from buyers.
There’s no doubt that student loan debt is a hot topic these days and has become problematic in the last decade. Currently 42 million Americans have an average of $29K in outstanding student loans according to Rohit Chopra, an advisor to the U.S. Department of Education. Of the 42 million, 7 million are in default and 3700 additional borrowers go into default every day, adds Chopra. Even baby boomers (ages 52-70 years) are facing this challenge, as they borrow money on behalf of their children’s college education or they themselves decide to go back to school. Legislation is looking into longer-term, sweeping reform bills that will provide education and ensure students are better prepared to handle debt as well as a bill that would provide more repayment options.
There is definitely a drop in first-time home buyers- 32 percent now, a drop of 10 percent from historical norms. This is due to debt and home affordability/appreciation. To help clear the path to home ownership, the Federal Housing Administration (FHA) is reducing the amount of deferred student debt from 2 percent to 1 percent, that counts against a buyer’s debt-to-income (DTI) ratio- a factor that determines loan qualification. Put simply, a person with $10K in deferred student loan debt would have a $100-per-month repayment obligation in calculating the DTI ratio, rather than $200-per-month.
These changes may give first time home buyers hope in the coming months/years.