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Millennials Opting for Tiny Homes & Affordable Zip-Codes Due to Crushing College Debt

Millennials Opt for Tiny HomesMillennials, struggling with staggering college debt, are buying really small homes. Making ends meet and dealing with unexpected expenses is a big challenge. Furthermore, places most favored by Millennials include Bay City, Michigan, Indian, Pensylvania and Aberdeen, South Dakota.

According to the latest Ellie Mae Millennial Tracker more than half of single Millennial homebuyers last month were men, compared to 40% who were women; the remaining seven percent were unspecified. Single homebuyers borrowed $172,904, on average, and had an average FICO score of 720.

WHERE MILLENNIALS ARE BUYING HOMES

Aberdeen, South Dakota., Indiana, Pennsylvania., and Odessa, Texas were the top markets in which married Millennial homebuyers were more likely to close a mortgage loan in July than their single counterparts. Sixty-seven percent of married Millennial primary borrowers last month were men, compared to 25% who were women; the remaining eight percent were unspecified. Married homebuyers borrowed $277,651, on average, and had an average FICO score of 729.

WHY TINY HOMES

Meanwhile, the primary reason millennials are buying tiny homes is their student loan debt. Even for those who manage to save enough for a down payment on a traditional house, the cost of huge monthly student loan payments makes paying even more on huge mortgage payments a fantasy. The comparatively low cost of a tiny home allows Millennials struggling with student loan debt to secure housing and stabilize their financial circumstances.

According to the American Financial Benefits Center (AFBC) enrollment in federal programs such as income-driven repayment plans (IDRs) is very helpful to Millennials buying homes.

IDRs, alternative repayment options for federal student loan borrowers, are another way to focus resources into other important areas. IDR payments are calculated based on discretionary income and can potentially end in forgiveness after 20 to 25 years in the program.

Aside from lessening the burden of student loan debt, tiny homes are an attractive option for millennials for many reasons. Tiny homes are seen as a lower-risk investment and a hedge against a nosedive in the housing market. A tiny home doesn’t drain savings the way a traditional house does. Also, tiny homes reduce building materials and energy consumed, minimizing the negative impact on the environment and an owner’s monthly maintenance costs.  Since Millennials desire the freedom to move to another state or region to take a new job or go to graduate school, tiny homes provide millennials the mobility they need.

COLLEGE DEBT & FORECLOSURES LINKED

On the dark side a new study by Ameritech Financial finds a direct correlation between student loan borrower debt and home foreclosure rates. Without overlooking subprime lending and unemployment, researchers noted that parents who sent their children to college overextended themselves financially and this made them particularly vulnerable when the economy started its downturn.

Startlingly, from 2006 to 2011, increased rates of college attendance within income distribution groups predicted increased home foreclosure rates. Ameritech Financial, a document preparation company that helps federal student loan borrowers with repayment plan applications, may be the key to working toward finding solutions for borrowers overwhelmed by student loan debt.

According to the study, nearly 40% of 18- to 24-year-olds enrolled in college between 2005 and 2011. This is an 11% increase from 1985. During that period, “the expected family contribution” skyrocketed, leaving both students and parents to take out loans after savings and earnings were exhausted. The data shows that each one percent increase in college attendance across the nation resulted in 19,000 additional foreclosures the following year. Interestingly, this relationship holds true across all income levels.

Researchers caution that these results only suggest a causal relationship between the financial burden of paying for college and increased vulnerability for home foreclosure. However, the results do support the claim that college costs have tightened financial household pressures across the U.S. and that family investment in higher education has unintentional consequences when it comes to home mortgage security.

See also from CardTrak: Crushing College Debt Screwing Up Millennials’ Personal & Professional Decisions