Debt is derailing homeownership for a generation — here’s how we can fix it

The path to homeownership in America has never been easy. But for many millennials — the largest generation in the U.S. workforce — it’s not just a challenge. It’s an increasingly distant goal, and the biggest obstacle standing in the way isn’t always high home prices. It’s often debt.

We’ve seen a sharp rise in younger, middle-income consumers seeking help. Forty-three percent of our new clients are millennials, and 66% of them are renters. In high-cost states like California, that figure jumps to nearly 80%.

What’s keeping them from buying? In short: the numbers don’t work. The average millennial client comes to us with $30,000 in unsecured debt and some of the highest auto loan balances of any generation — averaging more than $28,000 nationally and surpassing $32,000 in states like Texas and Washington. For those already stretched thin, the return of student loan repayment has only added to the monthly financial strain.

A shifting financial landscape

Even as inflation shows signs of cooling, a new wave of tariff-related concerns has renewed consumer anxiety. Essentials like food, utilities, and transportation are getting more expensive, and many Americans are falling further behind.

Most prospective homebuyers understand the importance of credit scores and down payments, but what’s less talked about is how high debt levels impact their debt-to-income (DTI) ratio — a metric central to mortgage underwriting. Even solid earners can be denied a mortgage if too much of their income is already committed to revolving or installment debt.

The cumulative cost of waiting

Delayed homeownership has real consequences. Renting longer limits wealth accumulation and leaves consumers exposed to rising housing costs without building equity. It also perpetuates financial stress: renters typically spend a higher percentage of their income on housing compared to homeowners.

That’s where structured debt management can help fill the gap. The average debt management participant pays off more than $23,000 in unsecured debt and experiences a positive credit score migration of 82 points over the course of the plan. More significantly, they reduce their DTI to a level that makes mortgage qualification a real possibility. In fact, about one in six participants obtain a mortgage within six years of enrolling in a plan.

“Because of the debt management program, we felt more comfortable that we could afford a mortgage and keep it up without feeling like we were overextended.” – Rose, CA

These outcomes aren’t isolated success stories. They demonstrate that many would-be homeowners don’t necessarily need more income — they need a plan to deal with their existing financial obligations.

A broader conversation about access

Addressing the debt barrier requires more than just financial education. It requires systems-level solutions. We need a more coordinated effort between housing advocates, policymakers, and the mortgage industry to recognize how modern debt dynamics — from student debt and credit cards to auto loans and medical bills — are reshaping mortgage readiness.

Some lenders are already experimenting with alternative credit evaluations, and federal housing agencies are exploring ways to incorporate positive rental history and other non-traditional data into underwriting. But without addressing underlying debt burdens, these efforts only go so far.

“It’s something I thought I would never be able to do, but I was able to apply for a mortgage and buy a house. My debt management plan was an experience I am truly grateful for.” – Lauren, NY

Next steps for the industry

To unlock homeownership for this generation, we must acknowledge the full scope of barriers — and debt is a central one. Lenders and housing professionals should consider how partnerships with nonprofits can support clients in becoming mortgage-ready. Programs that integrate financial counseling early in the homebuying journey — long before prequalification — can help bridge the readiness gap for aspiring buyers.

“I’ve loved the progress I have made tackling my debt. It’s been a smooth process with MMI, and I am now looking into home ownership this year through the NACA program!” – Alyssa, MD

The stakes are high. If we continue to treat consumer debt as a private problem rather than a systemic one, we risk sidelining millions of capable borrowers — many of whom are otherwise ready to become long-term homeowners.

Helene Raynaud is Senior Vice President of Housing Initiatives at Money Management International (MMI).

This column does not necessarily reflect the opinion of HousingWire’s editorial department and its owners.

To contact the editor responsible for this piece: zeb@hwmedia.com.