Can I Buy a House if I Have a Student Loan?

Is it possible for me to buy a house while I’m still paying off a student loan?

Yes, you can buy a house and have a student loan you are still paying off.   If student loan debt that is managed responsibly should not hold you back from purchasing a house.  A 2018 Student Loan Hero survey found that 43% of college-educated Americans with student loans postponed buying a home because of their student debt.  Lucky for you, there is very little truth to this concern.

Before buying a home, take some steps to help you get approved for a loan.

Boost your credit.  Once you have determined if it would be beneficial for you to purchase a home right now, you’ll want to start improving your credit. Your credit wellness is the primary factor that home lenders consider when deciding if you are eligible for a mortgage. It also figures into the rate they will offer you.

Here are some ways you can boost your credit score in the months leading up to your mortgage application:

  • Pay all your bills on time. Set up automatic payments to make it effortless.
  • Keep your credit utilization at less than 30 percent.
  • Pay your credit card bills in full, and before they are due.
  • Do not close old accounts or open new cards. You want your credit history to be lengthy, and both of these steps can significantly bring down your average.
  • Set up automatic payments to make sure you never miss a payment for a student loan and all other monthly bills.

Lower your Debt to Income Ratio. 

If your Debt to Income Ratio (DTI) is on the high side, you may not be eligible for a mortgage just yet.  Consider refinancing your student loan to a loan with lower interest rates so you can pay it off sooner and then apply for a mortgage when your DTI improves.  You can also look for ways to increase your income to tilt your debt ratio in your favor.  Make an effort to pay your student loan back as quickly as possible so it does not reflect badly on your debt-to-income (DTI) ratio.  Since taking out a mortgage means accepting more debt, lenders are careful to check that you are not carrying too much other debt.  Ideally, your total debt payments, including your mortgage, should account for less than 36 percent of your income.  If you are carrying any other debt, such as credit card debt, you will want to pay it off as quickly as possible as well.

Determine how much house you can afford. 

The best way to obtain this information is getting a pre-approval from a home lender.  This will tell you exactly how high you can go while showing sellers that you are serious about buying a home.  You can also use an online mortgage calculator to estimate how much you can afford as well.

Start saving for a down payment. 

Once you know how much you can afford and how much your pre-approval is, you will need to save up for a down payment. Trim your budget in any way you can and look for side hustles to boost your income and make saving simple.  Then, set up an automatic monthly transfer to your Savings Account so your money can grow while you sleep.

At this point, you may want to look into a local down-payment assistance program or a federal loan program, such as an FHA loan, which only requires a down payment of 3.5 percent. If you live in a rural area, you might qualify for a USDA loan, and if you have served in the military, you’re likely eligible for a VA loan.

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