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Low Credit Scores Are Hurting Millennial Homebuyers: TransUnion Survey

Written by Paul Esajian

A recent TransUnion survey reveals that nearly a third of millennials — ages 18 to 34 — would like to purchase a home within the year, but can’t because of low credit scores.

The survey examined 1,843 millennials and found that while 32 percent of respondents planned to buy a home within the next 12 months, 43 percent currently have a credit score between 300-600, which is defined as a subprime.

“Credit scores are a crucial component of the homebuying process, impacting everything from the size of a mortgage payment to the interest rate on a home loan,” said Senior Vice President for TransUnion, Ken Chaplin.

“People with subprime credit may face financial barriers to homeownership, making it difficult for their dream home to become a reality.”

Credit scores are lowest among young adults ages 18-29 year olds, which have FICO scores below 699, than any other age groups, according to data collected by credit scoring system FICO. Approximately 32 percent of FICO “scorable” consumers aged 18-34 have a score below 600, including 10 percent which have no credit score at all. The national average credit score is 667.

“It makes intuitive sense why the younger generation has lower credit scores,” FICO said in a statement. “More younger consumers have a missed payment on file, and on average, the missed payment occurred more recently than for older consumers.”

The primary concerns among millennial homebuyers in the home buying process, according to the TransUnion survey, were having a low credit score (47 percent), inability to fund a down payment (59 percent), and not qualifying for a low interest rate on a mortgage (56 percent).

“The homebuying process begins well before you start looking for real estate,” Chaplin said. “A credit score, which significantly impacts the home financing process, is built on good spending habits and a pattern of responsible borrowing established over a lifetime.”

According to TransUnion, millennial homebuyers should check their credit report three months before starting the home buying process to ensure scores are in a healthy ranges and information is up to date. To build credit, TransUnion recommends that millennials with low to no credits should begin taking the necessary steps to build their credit. This includes maintaining a low credit utilization ratio, while paying all bills on time each month.

The online TransUnion survey was conducted between March 8, 2016 and March 9, 2016.

Millennials & Student Debt

Another component hurting millennial homebuyers is student loan debt. A recent joint survey on student loan debt and housing released by the National Association of Realtors and SALT, a financial education and responsible borrower program, showed that 71 percent of non-homeowner respondents believe student loans are affecting their ability to purchase a home.

“A majority of non-homeowners in the survey earning over $50,000 a year — which is above the median U.S. qualifying income needed to buy a single-family home — reported that student debt is hurting their ability to save for a down payment,” said Lawrence Yun, NAR chief economist.

The NAR survey also revealed that 80 percent of millennials said their delay in homeownership is because they can’t save for a down payment, with 69 percent of respondents stating they don’t feel financially secure enough to buy, and 63 percent said they can’t qualify for a mortgage because of debt-to-income ratios.

“Along with rent, a car payment and other large monthly expenses that can squeeze a household’s budget, paying a few hundred dollars every month on a student loan equates to thousands of dollars over several years that could otherwise go towards saving for a home purchase,” Yun said.

On the flip side, the survey also found that nearly a third of current homeowners said their student debt is delaying them from selling their home and purchasing a new one. Approximately 18 percent of respondents said it was too expensive to move and upgrade to a new home, while seven percent said student loans were affecting their credit, and six percent were underwater with their mortgage due to student debt.

“It is imperative to the nation’s economy that we find immediate and practical solutions to financially empower the 43 million Americans with student debt,” said SALT President John Zurik.

The survey also revealed that almost half (46 percent) of millennials respondents currently live with family, while 42 percent said student debt delayed their choice of moving out of their family’s home after college.

“Nearly three-quarters of older millennials, many of whom graduated at the peak or immediately after the downturn, said their ability to purchase a home is affected by student debt,” said Yun. “Add in the detrimental effects of low inventory as well as rents and home price growth outpacing wages and it’s mainly why the share of first-time buyers remains at its lowest point in nearly three decades.”

Co-written by NAR, the 33 question survey was distributed through SALT to 75,000 student loan borrowers who are current in repayment. The survey received 3,230 student responses with a response rate of 4.3 percent.