Are you worried about “Can I buy a house with student loan debt?” Student loans can be an intimidating financial obstacle, making the dream of homeownership seem out of reach. However, buying with student loan debt is possible and will depend on factors like debt level as well as income savings and credit score.
Steven Park and Kathy Argento from Zillow Home Loans say it is more common than many may realize to own a home while paying down student loan debt.
“Student loan debt should not prevent anyone from purchasing their dream home,” according to Park.
Minimum payments on student loans may be manageable alongside mortgage payments, Park says, depending on how much debt one owes. Being financially conservative might seem responsible, yet overspending could cost opportunities that otherwise might present themselves. Park and Argento provided answers to some of our top questions on buying a home while paying down student debt like can I buy a house with student loan debt, etc.
Are Student Loans The Problem When Applying For A Mortgage?
Here are some of the answers to your concerns related to “Can I buy a house with student loan debt”. Park notes it is not unusual for first-time home buyers with $30,000-100k of student loan debt to still qualify for a loan; Argento says:
“We approve people with student debt all of the time”.
Student loan debt should simply be treated like any other debt and factored into an applicant’s total obligations and credit profile for qualifying purposes; just as car payments, credit card bills, and any personal loans would. Argento advises:
“Whether or not these are currently deferred obligations must all be counted.”
Argento emphasizes that carrying student loan debt should not stop you from purchasing a home; talk to your loan officer about how this may factor into the application.
Factors That Affect Home Buying With Student Loans
So, while exploring “Can I buy a house with student loan debt”, you should also be aware of some important factors. Your loan officer should discuss some important considerations that affect purchasing a house with student loans.
1. Your Debt-To-Income (DTI) Ratio
A debt-to-income (DTI) ratio measures your monthly debt payments relative to your total gross monthly income providing an accurate picture of what can and cannot be afforded.
An ideal debt-to-income (DTI) ratio for lenders should be 36% or below; this will demonstrate your finances aren’t stretched too thinly. That being said, lenders sometimes lend with DTI ratios higher than 36% depending on borrowers’ credit profiles, loan amounts desired, loan amount desired, etc.
Argento asserts that outstanding student loans could impede your purchasing power depending on your broader financial circumstances, so paying off those student loans early might help restore it. She recommends doing this if debt-to-income ratios become so excessive they prevent you from purchasing your desired home at its desired price point.
But they might not impact your purchasing power in any meaningful way, depending on factors such as income, the actual purchase price of the home, any outstanding debts on your credit report, and the cost of your new monthly house payment.
2. Your Credit Score
Mortgage officers will look carefully at your credit score when reviewing mortgage applications, so paying student loans promptly is vital in maintaining strong scores. Making on-time payments on these debts will keep your score strong over time.
3. Saving for Your Future
When money that would otherwise go toward savings is spent paying down debt payments instead, saving for other things like down payments or closing costs on a house becomes harder. Some mortgages require as little as 3% down; with VA loans it could even be zero. However having more savings gives more purchasing power when purchasing power becomes an issue.
Even while paying off student loans, saving for a down payment remains possible. Budget and allocate funds into buckets that fit with your lifestyle so that both goals (student loan debt reduction and home buying goal realization) can be reached successfully.
How To Buy A House With Student Loan Debt?
Before diving in and trying to buy a house with student loan debt, do yourself a favor and become pre-qualified about “Can I buy a house with student loan debt?”. So, you know which loans and mortgage programs your debt may disqualify for.
Once this step has been taken, there are additional actions you can take to expedite the process.
Check Your Credit Score And Work To Increase It
Your credit score plays a huge part in being approved to buy a home. If there have been periods in which loans weren’t being repaid as promised and this caused damage to your score, look into other methods of improving it such as paying credit card bills on time for instance.
Aim To Decrease The Number Of Debts You Owe
Attain a debt repayment goal. Doing this will improve your DTI ratio and help determine which homes will and won’t be affordable to you. Focus on paying off manageable outstanding debts like small credit card bills, medical costs or car payments as quickly as possible. Prioritizing debt repayment before signing for a mortgage can set the stage for homeownership success. Learn about other effective strategies to clear away your obligations.
Consider your financial status and assess if purchasing a home is within your means.
Carefully consider your current budget and projected monthly and annual income before considering adding homeownership costs such as mortgage payments into the equation.
Examining your bank accounts, current pay and anticipated pay is one way of estimating whether home ownership would be feasible for you.
Consider First Time Home Buyer or Down Payment Assistance (DPA) Programs
There are first-time home buyer programs, as well as down payment assistance (DPA) programs, that make financing your first home more attainable when paying off student loans.
Can I Buy a House with over $100K in Student Loan Debt?
Your ability to buy a home while carrying more than $100K student loan debt depends upon your overall financial picture and income levels, Park notes.
“Fortunately, the mortgage industry will prevent people from becoming overwhelmed by payments that exceed what their income allows them,” according to him.
As part of their qualifying criteria for mortgage loan approval, lenders will assess your student loan payments against your credit report before factoring them into your debt-to-income (DTI). Your DTI helps establish what maximum loan amount would qualify.
Once you determine how much house you can afford based on your current income and student loan payments, assessing any alternative paths could help reach your home-buying goal. Mortgage loan officers won’t provide financial advice so consulting a financial advisor for some clarity can also be valuable in your home purchasing journey.
Financial experts often suggest income-driven repayment plans as an effective strategy to optimize both your income and monthly student loan debt, and thus your DTI, in such a way as to help secure mortgage approval. You might be paying more towards student loan debt than necessary due to how much money is coming in each month; an income-driven repayment plan can help resolve that, making payments more manageable while opening the possibility for you to secure the ideal mortgage solution.
Should You Pay Off Student Loans Before Buying a House?
When deciding whether or not to own your own home or refinance student debt first, it’s essential to assess where and what stage in life they live at when considering which option best meets their needs financially and personally.
“Home ownership may not always be necessary at every age and stage,” according to Park.
Argento asserts that buying a home in today’s rising market remains an attractive investment opportunity as homes continue to appreciate over time, she notes. Rent is charged at 100% interest while buying will increase over time in value. Argento never heard someone regret their choice to own a home when they did! Homes continually appreciate over time making for solid investments!
So, are you still stuck with “Can I buy a house with student loan debt?”. So, follow that!
To determine your financial readiness for home ownership, ask yourself these three questions:
- Do I have what it takes to pay the down payment?
- Can I afford the monthly payment?
- Will I be able to continue to make the same payment for the next 10 years?
Park advises: “If all three answers are positive, homeownership could likely bring significant advantages; begin looking for properties now.”
For that purpose, you can contact Las Vegas Real Estate Sales now!
