Buying a house with student loans? Here’s how

Buying a home is a big milestone, but if you’re also carrying student loan debt, you may wonder if it’s possible. The good news is that many people successfully purchase homes while managing their loans. Here’s what you need to know.  

Can you buy a house if you have student loans?

Yes, you can buy a house if you have student loan debt. Lenders will consider your debt-to-income (DTI) ratio, credit score, and overall financial health, but student loans don’t automatically disqualify you. With the right planning and preparation, you can still qualify for a mortgage and become a homeowner.

Do student loans affect buying a house?

They count toward your total debt and may raise DTI ratio, which lenders review when deciding if you qualify. This doesn’t mean you can’t buy; it just means you’ll need to show you can handle both your student loans and your mortgage.

Should you pay off student loans before buying a house?

Paying off student loans before buying a house can free up monthly income, but it isn’t required. If you can comfortably manage both payments and qualify for a mortgage with your DTI ratio, you may be able to buy a home while still paying down your student loans.

Tips for buying a house with student loans

It’s possible to buy a home while you have student loan debt, but it can be challenging. Here’s how to strengthen your finances and improve your chances of approval.

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. This step helps you see whether adjustments like switching repayment plans could free up cash to pay a mortgage.

2. Improve your credit score

Your credit score plays a major role in mortgage approval and interest rates. Paying bills on time, reducing your credit card balances, and correcting errors on your credit report can raise your score. Even a small improvement may mean a lower interest rate and thousands saved over the life of your loan.

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. A bigger down payment also reduces your lender’s risk, which can make approval easier, even with student loans.

Related: How to save money—learn to start saving now

4. Calculate debt-to-income ratio

Lenders typically want a DTI ratio below 43%. To calculate your DTI, add up all your monthly debt payments and divide them by your gross monthly income. Knowing your ratio ahead of time can help you understand what loan amount you may qualify for.

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. Government-backed options, like FHA, VA, and USDA loans, are insured by federal agencies to make homeownership more accessible. FHA loans help buyers with lower credit scores or smaller down payments. VA loans offer qualified veterans and service members no-down-payment financing. USDA loans assist buyers in eligible rural areas with low or no down payments. These programs often have more flexible requirements that can make owning a home easier to achieve.

6. Consider refinancing

Explore the possibility of refinancing your student loans to help lower your monthly payments. Reducing your payment can improve your DTI ratio, making you more attractive to lenders. Just make sure refinancing doesn’t eliminate benefits you may need later, such as federal loan protections.

7. Preapproval

Get preapproved for a mortgage to learn how much you can afford. This process gives you a clear budget, makes you more competitive with sellers, and helps prevent surprises later in the buying process.

8. Budget carefully

Consider all of your financial obligations, including mortgage, property taxes, insurance, maintenance of the house, and student loan payments, to determine whether you can comfortably afford homeownership. Creating a realistic budget helps prevent financial strain after you move in.

9. Debt payoff strategy

Develop a plan to help you manage and pay off your student loans while also handling your mortgage payments. This might mean paying extra toward high-interest debt, automating payments, or using windfalls like bonuses or tax refunds to reduce balances.

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. Working with professionals ensures your plan aligns with your long-term financial goals. Whatever your financial needs and goals, a New York Life financial professional is here to help.

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