Zillow’s 4th Annual Group Report on Consumer Housing Trends found that prospective home buyers with medical debt are more likely to be denied a mortgage, while those with student debt put off buying a home.
The report adds that more than two-thirds of renters have dent, and approximately a quarter of renters and homebuyers said their debt caused them to be denied for either rental agreement or a mortgage.
Zillow found that 16% of all buyers had medical debt while 20% carried student loan debt.
Denial of a rental agreement or a mortgage is most common for those with medical debt. Forty-four percent of homeowners and two-thirds of renters with medical debt say they couldn’t cover an unforeseen $1,000 expense—compared to half of all renters and one-fifth of homeowners.
According to the report, 39% of buyers said student debt led to a delay in buying a home, and also impacts how much they can put down, affecting budgets for decades.
“Two-thirds of buyers with any kind of debt put down less than 20% when they secure a mortgage, compared with 40% of buyers without debt,” the report says. “The share is even higher (76%) for buyers with student debt. Putting down less than 20%, while fairly common, not only increases monthly payments but also can lead to added expenses if a lender requires private mortgage insurance or other upfront fees to compensate for the added risk.”
Additionally, 68% of buyers with debt said they have made at least one financial sacrifice to afford homeownership, which is significantly higher than the 39% of buyers without debt.
The most common lifestyle change was reducing spending on entertainment, picking up a second job, cutting back on vacations, and decreasing expenses on technology. Also, those in debt are more likely to go over their homebuying budgets.
"When we focus on low unemployment and the strong economy, we often forget that in many ways the rising costs of life can erode most of those gains," said Skylar Olsen, Zillow's Director of Economic Research. "Health care has never been more expensive. Getting a college degree, a path more likely to lead to economic success for those able to get through it, has never been more expensive. U.S. housing values and rents have never been more expensive.
“While incomes, both at the high and low end, are growing, the pace hasn't kept up with those crucial life expenses. That's fact and Americans are feeling it."