Student loan debt influencing who can own a home in SC’s growing real estate market | The business

The housing market in South Carolina broke records even during the coronavirus pandemic, but the growing amount of student loan debt in the state continues to delay and prevent some people from becoming homeowners.

The loans that millions of Americans have taken out to finance their education can make it much more difficult for people to qualify for a mortgage, depending on their income and indebtedness, according to real estate brokers and lenders in South Carolina.

That debt could become an even greater burden in cities like Charleston, where saving enough money for an initial payment is a monumental challenge with soaring housing prices and inflated living costs.

The rising cost of rent in the Charleston area alone makes it increasingly difficult for people to accumulate enough money for the initial mortgage payment, said Owen Tyler, a Charleston area realtor with Cassina Group.

Add student loan payments to the mix, he said, and it could become a marathon for people to deposit the 3% to 5% down payment that is often needed to even consider buying a home.

“It is very difficult and very difficult to buy a home for the first time in Charleston, South Carolina, with or without student debt,” said Tyler, who also served as president of the South Carolina Association of Realtors.

“But the reality is that student debt drags you,” he said. “It’s a fight.”

A high price

Nicholas Simeon is one of thousands of South Carolinaians who are currently facing financial problems. About a year ago, Simeon, who graduated in 2014 from the University of South Carolina, began exploring the idea of ​​buying a home in the Charleston area.

By that time, he had already landed a good job as an accountant in Charleston, earning about $ 70,000 a year. His five-year-old girlfriend was getting ready to finish law school at USC, and Simeon was getting tired of spending $ 1,600 a month on renting his apartment in North Charleston.

Then, after saving what he could, Simeon met with a loan consultant. He thought he would be able to put his foot in the door to qualify for a mortgage.

But after reviewing the nearly $ 45,000 in student debt Simeon owes and the amount of his down payment, the loan adviser informed him that he had not saved enough.

That was a frustrating finding for Simeon. He felt well positioned early in his career and was earning much more than the region’s average income. But the loans he made to finance his education still served as a major deterrent to purchasing a home.

“Honestly, it is difficult to get a full amount of the principal whenever you are paying a third of your paycheck for student loans,” he said. “It makes you go back five or ten years. I’m not saying that my education is worthless, but I’m just saying that it seems like a very high price.”

That price convinced Simeon to move back in with his parents in North Myrtle Beach. The rent on his apartment was expected to increase by another $ 200 a month, he said, and it just didn’t make sense for him to continue paying that price to live in North Charleston while working remotely.

The plan, Simeon said, is to be able to save enough money while living with his parents so that he and his girlfriend could accelerate the dream of home ownership.

A national problem

The explosion of student loan debt is one of the biggest changes in the country’s personal finances in the past two decades. Student loans are now the largest category of family debt in the United States, apart from mortgages and other real estate loans.

There were more than $ 1.5 trillion in outstanding student loan debt in the United States at the end of 2020, according to the most recent data from the Federal Reserve. This represents a 500% increase over 2004, when Americans were carrying about $ 260 billion in education-related loans.

South Carolina is not immune to this trend. The most recent Federal Reserve data shows that more than 731,000 student loan borrowers in the state owed a total of $ 26 billion in student loans, and that number continues to increase each year.

The amount of money that individual borrowers owe has also increased in South Carolina in recent years. In 2016, student loan borrowers in the state owed, on average, more than $ 30,000 in loans. In 2020, that number increased to more than $ 36,000.

In the same period, the average price of a home in the Charleston area, the most expensive real estate market in the state, increased from $ 240,000 to more than $ 300,000. All of this makes it more difficult for borrowers burdened with student loan debt to navigate home ownership.

Wes Sellew, a mortgage lender at Renasant Bank in Mount Pleasant, said student loan debt is often the first thing he looks for when clients come into his office. The way student debt is considered in federally supported mortgage applications, for example, can go a long way in deciding whether someone can repay a home loan.

“As soon as I see a student loan, my radar goes off,” he said. “It is a discussion that we are having all the time.”

If student debt in South Carolina and the rest of the country continues to grow at the pace of recent years, it could increasingly influence other segments of the economy, said Joey Von Nessen, a research economist at the University of South Carolina.

“The housing market is the most obvious example because it is the largest single purchase that most Americans make,” said Von Nessen. “There is only a certain amount of debt that an individual can assume and assume responsibly.”

Housing industry takes notice

The National Association of Realtors is already well aware of the influence that student loan debt is having on its sector. The group has conducted studies in recent years looking at how student loan debt is affecting home sales and property trends.

A prominent study by the group in 2017 noted how the rate of home ownership in the United States had fallen as the value of student loan debt in the country continued to rise.

“Although the value of the debt has increased, the rate of real estate has fallen, and has fallen more abruptly among younger generations,” said the report.

That survey found that about seven out of ten student borrowers said their college debts affected their decision to buy a home or their ability to finance such a purchase. And he noted that many aspiring home buyers who find themselves in this situation are forced to postpone the purchase of a property for up to seven years.

This is probably contributing to the fact that the average age for first-time home buyers has increased in the United States in recent years.

The sheer amount of student loan debt that many people are taking on may also be contributing to disparities in home ownership, which is the most common way for Americans to accumulate generational wealth.

Another study released this month by the National Association of Realtors, for example, found that black Americans are twice as likely to have student loan debt compared to whites. And the overall debt of black student loan borrowers was $ 10,000 more, on average, than white student loan borrowers.

This probably contributes to the fact that black candidates are rejected for mortgage loans twice as much as white candidates, according to the study.

Dorothea Bernique, executive director of Raise Hope, a nonprofit organization in North Charleston, has been providing financial advice to people for 15 years.

It is absolutely true, she said, that student loans are a major problem for aspiring home buyers. Even individuals who are able to save and save enough money for an initial payment and closing costs may be prevented from buying a home due to the size of their debt, she said.

Bernique, however, encourages people to meet with a mortgage advisor to learn more about their finances, even if they have substantial debts. As a licensed housing advisor, she found many people who simply do not have the basic financial education to know what steps to take to become a homeowner.

“There are ways to overcome this,” she said. “That’s why there are people like us.”