A person’s debt load has a tremendous impact on their housing options, including the type of home someone can afford to rent or buy, their timeline for buying a home and their ability to afford an adequate down payment.
A person’s debt load has a tremendous impact on their housing options, including the type of home someone can afford to rent or buy, their timeline for buying a home, their ability to afford an adequate down payment and, ultimately, whether or not they are approved for a mortgage.
Renters are more likely than homeowners to have debt, with 69% of them carrying it in some form, according to the Zillow Group 2019 Consumer Housing Trends Report. A little more than half of homeowners (54%) have debt beyond their mortgage.
Credit card debt is the most common form carried by both groups. Renters are also far more likely to have student debt: 32% of renters and 13% of homeowners carry student debt. The difference could be attributable to age – renters as a group are younger – and to student debt affecting renters’ ability to buy a home.
For renters and homeowners, debt’s impact on finding a home is immense.
Student debt, in particular, often delays the decision to buy. Half of renters and 39% of buyers said student debt led them to put off buying a home.
Even once they’ve decided to buy, debt concerns linger: 58% of home buyers with debt say they worried that they wouldn’t qualify for a loan, compared with 35% of buyers without debt. Those with medical debt were the most likely to be concerned (67%). And this probably underestimates overall concern, because only successful mortgage buyers actually end up with a home loan.
For some, those fears were well-founded. About a quarter of renters and home buyers said their debt caused them to be denied either a rental agreement or home financing at some point – and those with medical debt were more likely to have had that experience.
While renters’ age didn’t make much difference when it came to denials, it was a bigger factor for younger home buyers: 32% of Gen Z and millennial buyers said their debt caused them to be turned down for home financing, compared to 25% of Gen X and 8% of Boomer and Silent Generation buyers.
And for those burdened with debt, financial sacrifices are common – 73% of renters and 68% of buyers with debt said they made at least one financial sacrifice to afford their home, compared with half of renters and 39% of buyers without debt. The most commonly cited forms of sacrifice were reducing spending on entertainment, picking up additional work, cutting back on vacation and decreasing spending on technology.
Those in debt also are more likely to go over their budgets: 34% of renters and 30% of buyers with some type of debt go over budget compared with 23% of renters and 20% of buyers without debt. For buyers, those with medical and credit card debt are more likely to bust their budgets.
And medical debt, in particular, has a unique capacity to bust budgets and leave people unprepared for life’s curve balls: 63% of renters with medical debt said they couldn’t cover an unforeseen $1,000 expense, compared with 49% of all renters. Similarly, 44% of homeowners with medical debt cannot cover such an expense, compared with 20% of all homeowners.
Finally, home buyers with debt are also less likely to have a standard 20% down payment: 66% of home buyers with a mortgage and additional debt put down less than 20%, compared with only 40% of their counterparts without debt. The ratio is even higher – 76% — for mortgage buyers with student debt, which could be related to their younger age and greater likelihood of being first-time buyers with no proceeds from a prior home sale to put toward a down payment. Putting down less than 20%, while fairly common, can lead to added expenses if a lender requires private mortgage insurance or other upfront fees to compensate for the added risk of a smaller down payment/larger loan.
