Can You Afford A Home If You Have Student Loan Debt?

can you buy a home if you have student debt

Is student loan debt holding you back from homeownership?

It doesn’t have to. Recent studies show that student loans are at an all-time high with the average student coming out of college with over $100,000 in debt. But, you can still realize the dream of homeownership by taking the steps below.

What is your credit score?

FICO credit scores range from 350-800. The higher the score the better to obtain credit. Pay your bills on time and keep your balances low to maintain a good score. A credit score under 600 is considered poor, and anything over 750 is considered high. To qualify for a mortgage and a low mortgage rate, you will need a good score. Check your reports frequently and if you see a mistake report it to the credit bureaus.

What is your debt to income(DTI) ratio?

Your debt to income ratio is your monthly debt payments as a ratio to your income. Lenders will use this information to determine if you will be able to afford a mortgage each month. Mortgage companies typically use a 28/36 qualifying ration to determine if you’re eligible for the best rates. This means that you are only spending 28% of your gross monthly income on housing expenses and no more than 36% on total debt.

Some lenders will still give you a loan even if your DTI is high, but be sure to consider if you are comfortable taking on the loan. There are ways to reduce your DTI. Refinance your student loans to lower your payments, take on a second job to pay off existing debt or use an income-based repayment program to repay your student loans.

Get pre-approved for a mortgage.

Before you start looking for your dream home, talk to a mortgage professional first to see how much you can afford. To get approved, lenders will look at your income, assets, credit record and employment. Once you have your approval you will know how much home you can afford.

Look for a down payment assistance program.

There are many types of down payment assistance programs available for homebuyers throughout the country.

  • FHA loans: These are federal loans available through the Federal Housing Authority
  • VA loans: These loans are available to people who have served in the military.
  • USDA loans: These loans offer zero down payment for people who live in rural areas.

Special programs are also available through federal, state and local levels, so be sure to ask about any of those as well.

Is it the right time to buy a home?

After you have taken the steps above, consider these factors before you decide to buy a home while you still have student loan debt. Do you feel comfortable with your income? Are you in a profession where your income will be steady for a long period of time to support two large payments each month? Are you willing to cut back in other areas of your life to afford a mortgage and student loan debt? This can be as simple as not taking an extravagant yearly vacation or cutting back on retirement savings until your debt becomes more manageable.

Owning a home is a great investment even if you have student loan debt.

Homeownership is one of the best types of investments you can make in your lifetime. So, consider taking the leap even if you have student loan debt.

If you have been debating about getting started or are curious about market conditions in your area, we can match you with a Dickens Mitchener agent who can help you decide the best time to buy a home. Contact us here or callĀ  704.661.2402.