The Simple Truth About Student Loans and Homeownership

Once you graduate college, you’re handed a diploma and—most likely—a mountain of debt. Your mission, should you choose to accept it, is to find a job where you make enough to pay off your student loans and then, maybe, move on to the next big investment of your life homeownership.

Unfortunately, according to a study by Credit Sesame, the state in which you live may affect your ability to pay your student loans. The study found that residents of West Virginia and Mississippi have the highest number of people unable to pay for their loans (as measured by student loan delinquency rates) at 18 percent, followed by Kentucky, Nevada, Oklahoma, and Arkansas at 16 percent.

On the other hand, places like North Dakota and Massachusetts were the easiest places to pay off loans: These two states had the lowest rate of student loan delinquency, at six percent; followed by Utah, Washington, New York, and Illinois, which had the next lowest rate at eight percent.

Since student loans are such a big obstacle for millennials achieving homeownership, is it easier to save up and buy a house in these states with low delinquency rates? I asked real estate agents in two of these states—Utah and Washington—how the economic environment in their state favors homeownership for millennials. Here’s what they said:

The median home price in Washington is $377,100—which is too high for the average millennial, who makes around $35,592 (according to SmartAsset.com, using Bureau of Labor Statistics data). Using the rule of thumb that you can afford a house worth about 2.5 times your salary, the average millennial can only afford an $88,000 house (or a $176,000 house if two average-earning millennials are buying together).

However, in Seattle, which is a job hub for tech companies like Amazon, Google, and Facebook, Boeing, etc., millennials may have more of a shot—even though the median home price is higher at $733,400—says John Manning, owner and Realtor at RE/MAX On Market in Seattle. In the city, the median household income is $121,000, according to a recent “Seattle Times” article, which can afford a $302,500 house.

“Seattle, Washington, is a perfect example of a place where career, homeownership, and elimination of student debt intersect,” said Manning. “This empowers younger buyers to take on the risk of homeownership, safe in the knowledge that they have excellent employment prospects in the area.”

Though not every millennial in Seattle can afford to buy, many can. Manning explained that tech companies rely heavily on signing bonuses, stock, and option grants to attract and retain top talent.

“These bonuses can provide a cash windfall that allows the payoff of student loans,” he said. “In many cases, our successful technology sector has allowed younger home buyers to eliminate student debt and afford a down payment in the same year.”

Manning said that he recently sold homes to millennials between $500,000 to $1.6 million.

“Even though we don’t have a high rate of delinquencies here, we haven’t really seen an influx of millennials into the market yet,” says Jen Horner, Realtor for Re/Max Masters in Salt Lake City, Utah.

Horner posits that maybe Utah’s economy is helping millennials just enough to pay their student loans back, but not enough to additionally save for a down payment. The median house price in Utah is $325,400 and the median household income is around $65,977, according to Census data, which can afford a $165,000 house.

Of those who have bought a home, a large portion have received help from their parents.

“They’re getting a portion of their down payment gifted,” she said. “They almost need it.”

However, Utah’s economy may be helping more people buy a home sooner than they otherwise would. A recent LendingTree study showed that three cities in Utah—Provo, Ogden, and Salt Lake City—held the top positions for the youngest average homeowners in the nation: between 47 and 50, compared to the national average of 54.

So even if millennials aren’t buying homes in Utah while they are in their 20s and 30s just yet, they might be establishing their life in the state while paying off their debts, so they don’t have to move until they get a wee bit older.

“Utah is a real estate market that younger home buyers should seriously consider if they haven’t already done so,” said Horner. “The Utah economy is booming, the state has been a consistent leader in low unemployment, job and wage growth, and offers an incredible outdoor lifestyle located within minutes from the city. Younger buyers love the fact that they can choose between city, suburbia or mountain living.”

If you want to someday buy a home—whether or not it’s easy or hard to pay back your loans, Horner encourages you to sit with a mortgage lender and a real estate professional as soon as possible to understand when you can afford to buy a home, what plays into the equation of affording a home, and ultimately what you will be able to afford. If you can’t immediately afford a home (the answer might surprise you!), it will at least allow you to create a game plan so “someday” can eventually become “now” versus “never.”