New Study Finds Student Debt Is Killing Homeownership Dreams in These Cities
This article originally appeared on GOBankingRates.com: Move Here If You’re Still Dealing With Student Loans
For many people, living the American dream means you’ve accomplished two major things: buying a home and graduating from college. However, your ability to do both could be severely limited by where you live.
That’s because, based on the cost of a typical mortgage in your area, homeownership might be thoroughly out of reach if you’re still paying off your student loans, according to a new study from GOBankingRates.
The study looked at the 100 largest cities in the U.S. by population, then scored them on their average student loan debt, median income and what percentage of that income is taken up by the monthly payment on an average mortgage for the area. From there, a clearer picture of just how affordable a mortgage might be while still carrying student loans emerges. The results demonstrate that, while keeping housing costs under a third of your income and still having room for student loan payments is definitely possible in some cities, there are other cities where people can’t afford to buy homes.
Least Affordable Cities If You Have Student Loan Debt
The rule of thumb on housing costs is that you should expect to spend about a third of your income on your place of residence. However, if you’re paying down your student loans each month, your budget iseven tighter. If your mortgage payment alone would be over 30 percent of your income — before you’ve even factored in costs like home repairs or property taxes — that likely means that affording both a student loan and buying a home isn’t going to be easy.
Find Out: How You Can Still Buy a House With Student Loan Debt
10. Fort Lauderdale, Fla.
Median Income: $52,315
Average Student Debt: $36,648.09
Average Monthly Mortgage Payment: $1,845
Portion of Income Required for Mortgage: 42%
Fort Lauderdale is home to above-average levels of student debt at over $36,000. And the $1,845 a month for an average mortgage there is already over 40 percent of the median income for the city before residents have paid down a penny of those college loans.
9. Atlanta
Median Income: $51,701
Average Student Debt: $41,253.16
Average Monthly Mortgage Payment: $1,394
Portion of Income Required for Mortgage: 32%
Atlanta is one of the worst cities for aspiring millennial homeowners. While Atlanta’s $1,400 a month mortgage payments are more on the reasonable side, incomes there just clear $50,000 a year. That means you’re already spending a third of your income on your mortgage before you’ve even addressed the over $40,000 in student loans for the average borrower — one of the higher levels of student debt in the study.
8. Birmingham, Ala.
Median Income: $33,770
Average Student Debt: $36,598.02
Average Monthly Mortgage Payment: $834
Portion of Income Required for Mortgage: 30%
Birmingham’s issues with affordability don’t stem from unaffordable homes. In fact, the $834 a month for an average mortgage is very much on the low side. And, Birmingham is one of the cities where home prices are plummeting.
However, the combination of low incomes and relatively high levels of student debt place it among the 10 least affordable cities.
7. San Francisco
Median Income: $96,265
Average Student Debt: $39,435.14
Average Monthly Mortgage Payment: $7,580
Portion of Income Required for Mortgage: 94%
That average mortgage payment is … not a typo. San Francisco is one city where student loans don’t even really enter into the affordability conversation, as the median income of nearly six figures means the typical earner is going to have just under $500 left each month after paying their mortgage. And that’s not counting taxes. So if you’re living in San Francisco, still carrying student loan debt and not named Mark Zuckerberg, it seems unlikely buying a home is going to be realistic any time soon.
Click to See: What You Can Get in Every State for the Price of a California Home
6. New Orleans
Median Income: $38,721
Average Student Debt: $39,569.41
Average Monthly Mortgage Payment: $978
Portion of Income Required for Mortgage: 30%
Student loan debts in New Orleans are big, but they sure aren’t easy. And, with median incomes under $40,000 a year, that otherwise modest mortgage payment under $1,000 a month quickly starts to look unaffordable for someone with a monthly payment for their college loans.
5. Bronx, N.Y.
Median Income: $36,593
Average Student Debt: $27,732.50
Average Monthly Mortgage Payment: $2,253
Portion of Income Required for Mortgage: 74%
Bronx residents might have relatively low levels of average student debt, but the combination of New York’s frothy housing market and low median income in the borough combine to make a mortgage entirely unaffordable whether you have student loans or not. You’ll have just over a quarter of your income left after paying the average monthly payment of over $2,000.
4. Washington, D.C.
Median Income: $77,649
Average Student Debt: $46,360.23
Average Monthly Mortgage Payment: $3,695
Portion of Income Required for Mortgage: 57%
Despite having one of the highest median incomes in the study, Washington, D.C. exists well outside of affordable for its average resident to own a home, let alone do so while paying off student loans. The $3,695 a month you’ll need for an average mortgage is steep, and residents have the highest average student debt levels of any of the 100 largest cities in the country.
Did Yours Make the List? The Student Debt Crisis Is Hitting These 10 States Hard
3. Los Angeles
Median Income: $54,501
Average Student Debt: $32,354.09
Average Monthly Mortgage Payment: $3,794
Portion of Income Required for Mortgage: 84%
Paying off your student loans isn’t so bad in the City of Angels, relatively speaking. Median incomes are just under the national average, and the average student loan debts trail many other major cities. However, with an oversized average mortgage payment of nearly $3,800 a month, owning a home means paying over 80 percent of your income just for your house payments.
2. Oakland, Calif.
Median Income: $63,251
Average Student Debt: $38,200.01
Average Monthly Mortgage Payment: $4,124
Portion of Income Required for Mortgage: 78%
While Oakland is frequently the more affordable alternative to San Francisco across the bay, this is one case where its wealthier neighbor wins out. That’s solely due to Oakland residents earning an average salary that’s over $30,000 a year lower than in San Francisco. And while a mortgage is technically “more” affordable in Oakland, with four out of every five dollars you earn going to your house payments, it’s still far out of reach for the average earner there.
Find Out: 13 Ways California Real Estate Differs From Every Other State
1. Brooklyn, N.Y.
Median Income: $52,782
Average Student Debt: $34,966.37
Average Monthly Mortgage Payment: $4,128
Portion of Income Required for Mortgage: 94%
Brooklynites wanting to own a home while earning the typical salary there can expect to pay the same 94 percent of their income in mortgage payments as residents of San Francisco, due in no small part to earning much less money. And while student loan debts aren’t especially high there, the housing market puts homeownership well out of reach for most of the city’s citizens.
Most Affordable Cities If You Have Student Loan Debt
If you don’t think that you should have to decide between going to college and owning a home before you’re 50, these 10 cities could be just what you’re looking for. With more modest home prices, all 10 require less than 30 percent of the median monthly income to secure an average mortgage.
10. El Paso, Texas
Median Income: $44,431
Average Student Debt: $25,609.55
Average Monthly Mortgage Payment: $784
Portion of Income Required for Mortgage: 21%
The modest mortgage payment of under $800 means that — despite a median income under $45,000 — typical El Paso residents are spending about one in five dollars they earn on their mortgage. Pair that with relatively low levels of student debt, and El Paso is one place where you can expect to own a home even if you’re still paying down your student loans.
9. Oklahoma City
Median Income: $51,581
Average Student Debt: $27,727.48
Average Monthly Mortgage Payment: $768
Portion of Income Required for Mortgage: 18%
Oklahoma City has one of the more affordable housing markets in the country, and student debt levels are also more reasonable. While the median income is somewhat modest, it still translates to a mortgage that eats up less than 20 percent of your income, making it realistic to think you could afford to keep paying down both that and your student loans without stretching your budget too far.
8. Fort Worth, Texas
Median Income: $57,309
Average Student Debt: $27,377.29
Average Monthly Mortgage Payment: $1,078
Portion of Income Required for Mortgage: 23%
With an average mortgage costing just over $1,000 a month, this is one of the cities where buying a home is “worth” it. And with relatively low student debt levels, owning a home while still paying down your college loans is most likely achievable for many if not most residents.
7. Spring, Texas
Median Income: $67,800
Average Student Debt: $31,513.88
Average Monthly Mortgage Payment: $1,078
Portion of Income Required for Mortgage: 19%
One state really stands out in this study and that’s Texas, with six of the top 10 most affordable cities in the Lone Star Sate. The next one here is Spring, where the typical mortgage is identical in cost to that of Fort Worth but the median income is over $10,000 a year higher — making the additional $4,000 in student loans for the typical borrower much more manageable.
6. Virginia Beach, Va.
Median Income: $70,500
Average Student Debt: $30,265.62
Average Monthly Mortgage Payment: $1,480
Portion of Income Required for Mortgage: 25%
Virginia Beach costs more than most of the other most affordable cities with a mortgage that will run you about $1,500 a month. However, with median incomes over $70,000 a year, that still represents just a quarter of the average income, and means fitting in a student loan payment on top of a mortgage payment isn’t out of the question.
5. Corpus Christi, Texas
Median Income: $53,626
Average Student Debt: $26,055.87
Average Monthly Mortgage Payment: $868
Portion of Income Required for Mortgage: 19%
Back in Texas, Corpus Christi residents have a median income of just $53,626, but they’re also doing better in terms of their average student loan debt and can expect mortgage payments well under $1,000 a month. It all adds up to just 19 percent of your income going to a mortgage, making it possible to afford while still paying down student loans.
4. Katy, Texas
Median Income: $73,865
Average Student Debt: $31,380.44
Average Monthly Mortgage Payment: $1,375
Portion of Income Required for Mortgage: 22%
Katy is home to some solid earners with a median income approaching $75,000 a year. And with a mortgage payment on the affordable side at under $1,500 a month, less than a quarter of your income will go to housing if you’re earning and paying about average.
3. Bakersfield, Calif.
Median Income: $60,058
Average Student Debt: $25,436
Average Monthly Mortgage Payment: $1,326
Portion of Income Required for Mortgage: 26%
Bakersfield residents should expect to pay about a fourth of their income toward their mortgage if they’re homeowners. But the city ranks high on this list because of the low levels of student debt in the city. The average borrower owes just over $25,000, among the lowest levels in the study.
2. Plano, Texas
Median Income: $88,578
Average Student Debt: $34,046.85
Average Monthly Mortgage Payment: $1,774
Portion of Income Required for Mortgage: 24%
The sixth and final Texas city among the most affordable is the wealthy Dallas suburb of Plano, where the median income of $88,578 is anything but plain. So while the typical mortgage payment is high, and nearly $35,000 in student loans on average is on the higher side, you’re still paying less than a quarter of your income towards your mortgage each month.
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1. Naples, Fla.
Median Income: $90,507
Average Student Debt: $31,840.04
Average Monthly Mortgage Payment: $2,094
Portion of Income Required for Mortgage: 28%
Texas might have the quantity, but it’s Florida ultimately winning out on quality with Naples, the most affordable city to own a home with student loan debt. Naples actually has the highest percentage of income going to a median mortgage and the highest average mortgage payment of the 10 most affordable cities, but with a median income over $90,000 a year, the typical resident is in a position to afford it.
Click through to discover the best states for families to live a richer life.
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Methodology: GOBankingRates found the cities where student debt makes buying a home more difficult by observing the 100 biggest cities in the U.S. and then identifying the average loan amount in each city, the median household income for each city and the median home value along with the monthly mortgage payment for each city assuming that you are paying a 20% monthly mortgage rate. We then annualized the monthly mortgage payment in order to see how much of the cities’ median income mortgage payments take up. Next, we scored each one of these categories individually with a lower score indicating a higher rank and a higher score indicating a lower rank. The cities ranked lowest are the ones where after covering mortgage payments, there’s almost no more money to left cover student debt. To compile the data, we used information from LendEDU and Zillow.
Please note photos are for illustrative purposes only. As a result, some of the photos might not reflect the cities listed in this article.
