Can You Buy a Home While Paying Off Student Loans?

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If you have student loan debt, you are certainly not alone. But like many young adults, you may also want to buy your first home. Buying a home is considered a financial rite of passage, but those with lingering student loan debt may be left wondering how their debt will impact their ability to achieve their financial goals. The right financial move for you depends on a number of individual factors, so you’ll need to take a look and see what effect your student loan debt can have on your ability to buy a home. The most important thing when paying off student loans and trying to buy a home is to not get discouraged. With a few actionable steps, hard work, and patience, you can get your student loan debt paid off and reach your financial goals.

Determine Your Debt-to-Income Ratio

One of the most influential factors in your ability to be approved for a mortgage loan is your debt-to-income ratio. This is the amount of your monthly income that goes toward paying debts such as credit cards, car loans, and student loans. Lenders use this metric to gauge your level of risk when it comes to taking on new debt. You can calculate this ratio yourself by adding the total of all of your monthly debt payments then dividing that total by your monthly income before tax. Lenders typically prefer that no more than 30-35% of your income is used to pay debts.

If your debt-to-income ratio is higher than this threshold, the best thing you can do is keep reducing the amount of your debts. Focus on continuing to pay off your student loan debt for now, and apply for a mortgage loan once you reduce your debt. You could also try to save up more money for a larger down payment, which would decrease the amount you would have to take out through a loan. With a lower loan amount, your debt-to-income ratio may not be as big of a determining factor in your approval.

If you debt-to-income ratio falls within the range that is considered acceptable to most mortgage lenders, you may be able to go ahead and start saving for a down payment now, while continuing to pay off your student loans. Use our Home Loan Calculators to get an idea of what your monthly mortgage payments might look like so you can start building that into your budget.

Save for a Down Payment While Paying Off Student Loan Debt

Saving up enough money for a down payment on a home while also paying off your student loans may seem intimidating, but it is doable. First things first, you need to examine your budget and determine where you can make cuts. Once you determine which expenses you can live without, or at least reduce, and you’ve taken care of all of your necessities, split the remaining funds leftover between your student loan payments and your down payment fund. And you don’t have to split the funds evenly – if your student loans have a high interest rate, you may want to allocate a bit more to getting that debt paid off. Then you can put the money saved on interest toward your down payment.

Consider putting your down payment savings in a separate share or account so you won’t see it and be tempted to spend it on other things. Set up automatic payments for your student loan payments and automatic transfers for your down payment savings so you don’t even have to remember to take care of it or see the money leaving your account. Automating your savings and debt payments is the best way to hold yourself accountable to making fast progress. If you have multiple student loans or incredibly high interest rates, look into refinancing or consolidating your debt to get a better interest rate and more manageable payment.

Improve Your Chances at Getting Approved for a Mortgage Loan

Having student loan debt won’t make or break your chances of getting approved for a mortgage loan. However, if you are concerned and want to increase your chances, there are several things you can do. Start by checking your credit score and reviewing your credit report to make sure there is nothing you need to address before applying for a new loan. You are entitled to one free credit report every year from Annual Credit Report. If you notice any errors, have them corrected immediately. If you realize your credit isn’t where it should be, waiting until you improve your credit can save you thousands of dollars over the life of the loan. You should also avoid taking on any new credit before applying for a mortgage loan, as any changes to your debt-to-income ratio can impact your chances at getting approved for the loan and receiving a reasonable interest rate. If you aren’t applying for a mortgage loan right away, work as much as you can on paying down your existing debts so you can reduce this ratio.

The best thing you can do to protect your chance at being approved for a mortgage loan is to uphold a consistent payment history on your student loans by continuing to pay on time each month. If you’re close to the end and only have a little bit left to pay off, paying it all at once and eliminating the debt entirely can greatly improve your chances of getting a loan. If you’re not able to pay off your remaining debt before applying for a mortgage, keep focusing on making your payments on time each month, and try to pay as much as you can to help you pay it off quicker.

If you’re ready to apply for a mortgage loan, let our team help you get the loan you need. Visit our Mortgage Loan Center to learn more about the mortgage process, and check out our Home Buying Calculators to get a picture of what your home loan will look like. Apply for a mortgage loan online or set up an appointment to speak with one of our Mortgage Loan Officers.

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