Can I Buy a House Even if I Have Student Debt?

Loan officers explain what you need to know about homeownership and student debt.

It makes sense to feel as though student loans are preventing you from becoming a homeowner because they are unquestionably a significant financial barrier. However, it is feasible to purchase a home while having outstanding student loan debt. Your specific financial position, including your income, savings, and credit score, will determine whether or not you should obtain a mortgage while still having student debts.

Student loan debt shouldn’t prevent you from owning a home if you can manage your finances and have a reliable source of income, according to Park.

Depending on your balance, Park notes that minimum payments for student loans might be fairly affordable when combined with a mortgage payment. Furthermore, although paying everything off and being debt-averse may seem like the right thing to do, doing so may eventually result in missed opportunities.

We posed some of the most important queries to Park and Argento regarding home ownership and student loan repayment.

Factors influencing the purchase of a home with student debt

The following are some crucial elements that your loan officer may go over with you.

The ratio of your Student debt to income (DTI)

A debt-to-income ratio provides you with a realistic understanding of what you can and cannot afford by calculating the percentage difference between your monthly gross income and your monthly debt payments.

Generally speaking, a DTI ratio of 36% or less is preferable since it will demonstrate to your lender that you are not in over your head financially. However, depending on the borrower’s credit history, the desired loan amount, and other variables, many lenders will approve loans with DTI percentages higher than 36%. To receive an accurate assessment of your own debt-to-income ratio, utilize Zillow’s DTI calculator.

According to Argento, depending on your overall financial circumstances, outstanding school loans may lower your purchasing power. If your debt-to-income ratios are so high that they keep you from purchasing a home at the price range you’ve set for yourself, you should think about repaying your school loans, the expert advises.

However, it’s possible that they aren’t reducing your purchasing power at all. Your income, the real cost of the house, any other debts you may have on your credit record, and the amount of your new monthly house payment all play a role.

Your credit rating

When you apply for a mortgage, loan officers will take your credit score into account. Your credit score may be impacted by late student loan payments, so it’s critical to make on-time payments to maintain a high score.

Your reserve

It could be more difficult to save money for other goals, like a down payment or closing expenses on a house, when that money is going toward your monthly debt payments. The more money you have saved, the more purchasing power you will have. However, certain mortgages do require as low as a 3% down payment, or even 0% down with a VA loan.

Even though it might not seem possible, you can still choose to save money for a down payment in addition to repaying your student debts. Make a budget and set aside funds for buckets that fit your lifestyle in order to pay off your student loan debt and fulfill your desire to purchase a home. Here are 21 original methods to cut costs.

How to pay off school loans and purchase a home

Do yourself a favor and become pre-qualified before starting the application process so you can see exactly how your student debt may effect which loans you qualify for and which ones you don’t.

After doing this, there are more actions you can take to advance the procedure.

Examine your credit score and, if necessary, take steps to raise it.

A major factor in determining whether or not you purchase a home is your credit score. Look for other strategies to raise your credit score if there was a time you were unable to make loan payments, which is negatively impacting your score. Consider paying your credit card bills on schedule as an example.

Try to pay off as much of your debt as possible.

Bid farewell to as much debt as possible. Your DTI will rise as a result, eventually influencing the kind of residences you can and cannot afford. Pay off any reasonable outstanding debts, such as minor credit card bills, hospital bills, or unpaid auto loans.

Prior to taking out a mortgage, pay off existing debt to improve your chances of becoming a successful homeowner.

Examine your financial status and determine whether you can afford to purchase a home.

Before you decide to add a mortgage and other housing charges to your spreadsheet, zoom out and review your existing budget as well as your predicted monthly and annual income.

It’s useful to look at your financial accounts, your predicted salary, and your existing pay to see if owning a property will feel manageable for you.

Think about DPA or first-time home buyer programs.

Down payment assistance (DPA) programs are among the first-time home buyer programs that could help make buying a house more feasible, particularly if you’re also managing student debt repayment.

Can I purchase a home even though my student loan debt exceeds $100,000?

The entirety of your financial situation will determine whether or not you can purchase a home with over $100,000 in student loan debt. According to Park, debt is entirely based on how steady and large your income is. He continues, “Fortunately, the mortgage industry will stop someone from overpaying themselves because the payments are too high in comparison to their income.”

Lenders use your credit report to estimate your student loan payment, which is then factored into your DTI to assess if you qualify for a mortgage. Your maximum loan amount will be determined in part by your DTI.

After determining your affordability based on your income and monthly student loan payments, you can determine if there is another route that could help you reach your home-buying objective. In order to get some clarity on your alternatives, you might think about speaking with a financial counselor as mortgage loan officers are not qualified to provide you with financial advice.

To help you optimize your income and monthly student loan debt — and eventually, your DTI — in a way that may help you when you apply for a mortgage, for instance, financial professionals may recommend income-driven repayment programs. Based on your income and loan balance, you may be paying more on your student loans than you should be. An income-driven repayment plan can help you adjust for this, which will ultimately make your payments more affordable and allow you to pursue your dream home.

Is it better to pay off school loans before making a home purchase?

Examining your current living situation and financial situation is crucial when deciding whether to pay off student loans or purchase a home. According to Park, “not everyone is suited for home ownership at every stage of their lives.”

According to Argento, purchasing a property in the current increasing market is still a wise investment if you can afford it because homes appreciate over time. She asks, “Why pay 100% interest on rent when you can purchase a home that will appreciate in value over time?” “I have never heard of anyone regretting their decision to purchase a home at that time. Homes are a reliable investment that will always appreciate in value over time.

Do I have what it takes to make the down payment? is a question you must ask yourself. Could I afford the $125 each month? Can I afford to make the same payment for the ensuing ten years? “You should start looking for a house if you can answer yes to all of these questions,” advises Park. “You will most likely benefit from owning a home.”