How to buy a home, even if you have student loan debt

Can you get a mortgage when you have student loans?

Yes, but your ability to qualify for a mortgage and the terms you receive may be affected by your student loan debt. Lenders will consider your credit score, your debt-to-income ratio, and your overall financial stability when determining your eligibility for a mortgage.  

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Balancing student loans and a mortgage

It’s possible to buy a home while you have student loan debt, but it can be challenging. Here are a few steps to consider:

1. Assess your debt

Understand your student loan debt and how it affects your overall financial situation. Consider how much of your current income is dedicated to loan repayments or paying down the debt. Are there any adjustments that can be made in that regard.

2. Improve your credit score

A good credit score is crucial for getting a mortgage. Paying bills on time, reducing your credit card debt, and correcting errors on your credit report can help improve your score. 

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3. Save for a down payment

If you save a large enough down payment, you might qualify for a better mortgage with a lower interest rate, which can help lower your monthly mortgage payments. The added bonus is that the total amount you eventually pay the lender will be smaller.

4. Calculate debt-to-income ratio

Lenders typically want a debt-to-income (DTI) ratio below 43%. To calculate your DTI, add up all your monthly debt payments, and divide them by your gross monthly income.

5. Explore loan options

Look into different loan programs for first-time home buyers, and find lenders that may be more lenient toward those with student loan debt. FHA loans and other government-backed programs could be helpful.

6. Consider refinancing

Explore the possibility of refinancing your student loans to help lower your monthly payments.

7. Preapproval

Get preapproved for a mortgage to learn how much you can afford. This could also show sellers that you’re a serious buyer and that you’re financially ready and able to move forward with buying a home.

8. Budget carefully

Consider what all of your financial obligations would be, including mortgage, property taxes, insurance, maintenance of the house, and student loan payments, to determine whether you can comfortably afford homeownership.

9. Debt payoff strategy

Develop a plan to help you manage and pay off your student loans while also handling your mortgage payments.

10. Consult a financial professional

A financial professional and a mortgage specialist can give you the advice and guidance you need, based on your unique financial situation, to help you make the best decision.

Whatever your financial needs and goals, a New York Life financial professional is here to help. 

Student loans can affect your ability to buy a home, but they won’t necessarily prevent it. They can impact the process by affecting your debt-to-income ratio, credit score, and income stability. They can also make saving for a down payment difficult.

Yes, but having student loans can impact your ability to qualify for a mortgage and the mortgage terms you’re offered.

The amount of student loan debt that’s considered “too much” for buying a house can vary depending on several factors, including your income, your credit score, other debts you may have, and the housing market in your area.

The 28/36 rule is a guideline that lenders use to determine whether a borrower can afford a mortgage. It shows lenders how much a borrower can comfortably afford to spend on housing costs while still maintaining a healthy financial situation. The first part of the 28/36 rule holds that your monthly housing costs should not exceed 28% of your gross monthly income, while the second part of the rule states that your total monthly debt payments should not exceed 36% of your gross monthly income.

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Want to learn more about preparing financially for home ownership? 

A New York Life financial professional can help determine what’s right for you.