Image: Overwhelmed woman © Corbis

Student loan debt, which topped $1 trillion in 2012, affects graduates in a variety of ways, not the least of which is their ability to buy a home. Real estate experts fear that rising levels of student debt, particularly in a time of tight credit, could put a serious crimp in the first-time homebuyer market. Student loan debt not only affects a borrower's ability to save for a down payment; it also limits the person's ability to afford a reasonable monthly payment.

"Student loan debt disproportionately impacts young households, which are typically the heart of the first-time homebuyer market," says Nicolas Retsinas, a senior lecturer in real estate at Harvard Business School. "Because first-time buyers are so crucial to a healthy real estate market, this issue is also disproportionately impacting the housing recovery. Student loan debt is just one more headwind that undermines the recovery."

A Federal Reserve Bank of New York study released in May showed that student loan debt is the only form of consumer debt to substantially increase since 2008. The study reported that 40% of consumers under age 30 have student loan debt, with the average 2011 graduate owing $23,300. Young people have turned to student loans in greater numbers because unemployment, rising tuition costs and declining home values have reduced the ability of many parents to pay for college from their savings and home equity.

Student loan debt and home-buying

According to the National Association of Realtors 2011 Profile of Homebuyers and Sellers (.pdf file), the number of first-time homebuyers -- about 52% were ages 25 to 34 -- dropped from 50% of the overall housing market to 37% last year. In addition, homebuyers in this age group (whether first-time or move-up buyers) dropped to 27% of the total market from 33% in 2001, the lowest market share in a decade.

"Lenders used to make exceptions for things like a high debt-to-income ratio, but now, in response to widespread mortgage defaults, they are more carefully scrutinizing the ability of borrowers to repay their loans," says Retsinas. "In some ways we've overcompensated and are denying loans to people who have OK credit, but clearly we are living in a more risk-averse time."

Yvette Clermont, a personal mortgage consultant and branch manager with Inlanta Mortgage in De Pere, Wis., says it makes sense to ensure that people can truly afford a mortgage payment in addition to their student loan payments. But she adds that automated underwriting systems sometimes unnecessarily disqualify potential borrowers.

"Repaying student loans can be complicated because many people have multiple small loans or have deferred their loan repayment," says Clermont. "If you have several late payments on these loans, which can easily happen if you thought the loan was deferred and it wasn't, your credit score can be damaged and your loan denied even though you have corrected the mistake."

Clermont also notes that borrowers receiving help from their parents to repay their loans cannot count that assistance as income.

Student loans and mortgage qualifications

Dominic Turano, a sales manager at First Home Mortgage in Washington, D.C., says that sometimes student loan debt can improve a consumer's credit scores if the payments are all made on time, since most young people lack a lengthy credit history.

"In order to qualify a borrower, though, we have to take into account the total debt picture," says Turano. "Someone with a boatload of student loan debt may have a hard time qualifying."

He recommends pulling your credit report to make sure the student loan information is accurate and consolidating your loans to reduce the monthly payments and simplify the loan repayment process.

Even with student loan debt, many prospective borrowers can qualify, as long as they have sufficient income.

Maggie Flanagan, a first-time homebuyer with student debt, worked with Turano to finance her home purchase.

"I didn't know if I should be paying off my student loans first or saving money for a down payment," says Flanagan. "I was surprised that I qualified at all, because I assumed my student loan debt would be a problem. But I have good credit, and I don't have any credit card debt or a car payment. Interest rates are so low that I was able to qualify for more than I thought."

While Flanagan was able to save some money for a down payment, she had to rely on her mother to help pay for closing costs.

"The first-time-buyer sector of the housing market is the red meat of real estate," says Retsinas. "First-time home purchases drive the move-up market. We're seeing a renewed interest in homeownership as the market recovers, but the high level of student loan debt undermines that market."

Click here to become a fan of MSN Money on Facebook

More from