Owning a home can be a dream for many students, but student loan debt can make it seem out of reach. The study found a 0.6 percentage point to 38.1% decline in the fourth quarter of 2023 in homeownership rates for every $1,000 increase in student loan debt amongst recent college graduates under 35. However, there is hope! This article offers valuable tips for navigating the process of buying a house with student loans. The key lies in making sure your finances are strong. This could involve saving for a larger down payment or increasing your income to comfortably manage your student loans and future mortgage. Additionally, choosing a lender familiar with student loan borrowers can significantly improve your chances of getting approved for a mortgage.
Can you Receive a Mortgage with a Student Loan Debt?
It is possible to have a mortgage and student debt simultaneously. Your credit score and repayment capacity are the determining factors for your eligibility for a home loan, just like they are for any other kind.
Student loan debt only sometimes results in a lower credit score. One of the most crucial factors lenders look at is your debt-to-income ratio, and student loans will affect it. A large share of loan with high debt can impede loan acquisition and raise your debt-to-income ratio (DTI)
You must determine what monthly mortgage payment you can afford because you must also set aside a percentage of your salary to repay your student debts.
How to Be Eligible for a Mortgage If You Owe Student Loan Debt
Student loan debt is typically handled the same way as other forms of debt regarding mortgage approval. You will generally need a DTI of less than 43% for “qualified mortgages,” such as those backed by the federal government. Some lenders may permit a more excellent DTI.
Lenders will also take other aspects into account, such as:
Income stability: You may qualify if you demonstrate that you have enough consistent income to cover your mortgage and student loans.
Credit score: This shows how you manage credit and gives lenders an idea of your likelihood of making on-time payments. If you have a higher credit score, you are more likely to be approved for a mortgage because you are generally regarded as more reliable. If you need help raising your poor credit score, a credit counseling program can be worthwhile investigating.
Other assets: To give the lender a complete picture of your potential emergency fund, your savings, and other assets will also be considered.
Lenders may still follow the 43% DTI restriction if they seek government-backed programs like VA or Federal Housing Administration (FHA) loans. The upside of these loans is that you can get a loan with more accommodating credit parameters and a smaller down payment.
How to Pay Off Student Loan Debt and Buy a House
The procedure of purchasing a property with student loan debt is quite similar to that of buying a home without debt.
- Do your research and evaluate several lenders before starting the process. Find out whether you can get pre-approved so you know how much you can borrow. Preapprovals do not affect your credit score because they don’t necessitate a formal credit investigation.
- Consult a buyer’s real estate agent for assistance. The lender will ultimately cover the commission if you are fortunate enough to receive a buyer’s agent at no cost. In addition to acting in your best interest, a competent buyer’s agent can assist you in negotiating conditions. Additionally, you can receive assistance with scheduling inspections and title insurance, navigating the closing process and refinancing.
Does Debt from Student Loans Affect Purchasing a Home?
Student loan debt might affect your ability to afford a home purchase. Paying both your mortgage and school loans at the same time might also seriously strain your budget.
In fact, many millennials attribute their inability to buy a home primarily to their outstanding student loan debt. Research by the Federal Reserve Board found a four-month delay in homeownership for every $1,000 in student loan debt.
Your ability to purchase a home is impacted by student loan debt since it lowers the amount of money you have available for a down payment and ongoing housing costs. As a result, if you have more debt and are willing to make a lesser down payment, mortgage lenders are less likely to accept you.
Conclusion
You can still purchase a property if you have student loan debt, but you must know how your monthly payments affect your DTI. Before approving your loan, lenders will consider all of your financial circumstances. When trying to manage student loans, carefully evaluate your financial goals and circumstances to see if it makes sense for you to purchase a property.
