Student Loans vs. Homebuying

As the price of a college degree increases dramatically, so, too does student loan debt. Millions of American’s report that, even more than a decade post-grad, they are still stuck with thousands of dollars in student loan debt—and that’s the average.

However, there is no reason to let the burden of student loans impact your decision to buy a home. With the right financial planning, you can end up in the home you desire without having to sacrifice your monthly loan payment.

Credit score.

Your credit score is perhaps the most important piece of the puzzle in securing a mortgage loan for your new home. Lenders want to see that you are reliable in paying off your debts, and, while student loan payments (if you’re making them regularly and on time) should not affect your score too much, other payments can. Make sure you are on top of other monthly payments such as your car, insurance, and credit cards. Missing these payments or paying the minimum amount will negatively impact your score over time.

The down payment.

A stressful thought, for sure—the down payment on your home is probably a big point of concern if you have a lot of built up debt as it is. The secret is that the perceived “20 percent down requirement” is not actually a requirement at all, but a suggestion. You don’t want to jump head first into a down payment if you know you can’t afford it, but don’t assume you have to put the maximum amount down in order to secure your ideal home.

Debt-to-income ratio.

You may have heard this phrase before, or are at least experiencing the negative effects that student loans can have on this number. Either way, your debt-to-income ratio is the percentage of your income that is impacted by the amount of debt you carry. For some college grads, the ability to save even a little bit of money each month is impossible. But, like your credit score, your DTI is something banks will likely look at before offering a mortgage loan, so it’s important to keep this number in balance if you can.

Patience.

Whittling down student loan debt takes time for most people. It’s not uncommon to sit with this debt for upwards of fifteen to twenty years, so, above all, it’s important to be patient. If homeownership is your ultimate goal, be sure to give yourself a reasonable timeframe to get there so you don’t get overwhelmed and end up in an unfortunate financial position you can’t get out of.