Can I Get a Mortgage With Student Loan Debt?

Do you remember your college experience? More Americans than ever before are attending college or university, but there’s just one little cloud that rains on that parade: debt.

The unfortunate reality is that many young Americans who are beginning to think about buying a house or starting a family are still on the hook for at least some portion of their student loans. This has the potential to make buying a house difficult, and many analysts believe that this has contributed to the overall decline in millennial homeownership. Fortunately, there are steps you can take to limit the impact your student loan debt has on your housing prospects.

Buying a house is definitely possible, even with student loan debt! Today, we’ll talk about how student loan debt affects the home buying process, and how a supportive loan company like Homie Loans™ can help you overcome these potential obstacles.

The Challenges of Getting a Mortgage With Student Loan Debt and How to Overcome Them

There are many reasons why having a large chunk of student loan debt can be a challenge during the home buying process. Primarily, it has to do with debt, savings, and your credit score.

Your Debt-to-Income Ratio

Your debt-to-income ratio (also known as DTI) is a metric that lenders use to evaluate your finances when they’re looking at offering you a home loan. It can be calculated by taking all your incoming money (salary, investments, etc.) and comparing that figure to your total existing debts. The higher your DTI ratio, the riskier a lender will consider your loan.

Your student loan debt is considered in your DTI by looking at your monthly payment or your total outstanding balance. Remember, student loan debts have different requirements, standards, and deadlines. A certain percentage of those, no matter their circumstances, will be counted toward your DTI.

Cut Down on Debt

You don’t need to be entirely debt-free to buy a home, but you should definitely have your debt under control, and preferably under the standard 28% debt-to-income ratio. To lower your DTI, you can either look for ways to elevate your income, or you can pay off some debt – preferably both! When paying off debt, look for the debt with the highest monthly interest rate, and pay that off first.

Some people choose to refinance their student loans, which is a way to negotiate a new monthly payment and a corresponding lower interest rate. If you can refinance responsibly, this is a good action to take.

The Price of a Down Payment

Even if you do have a good DTI, chances are it’s more difficult to save when you have to put money towards your student loan debt every month. Every $100 that gets repaid is $100 that you can’t put into your own savings. Many people with student loan debt find saving challenging for this reason.

Look Into a Loan

There are a lot of things that younger buyers don’t know about the home buying process. One of the most important things to realize is that in some circumstances, there are loans available that can help with either your down payment, or your mortgage. These programs include down payment grants (great for lower-income buyers), forgivable second mortgages, and matched savings programs.

Your Credit Score

Another way that student loan debt affects your ability to buy a house is through your credit score. If you haven’t made your payments on time, or if you’re relying on multiple credit cards and lines of credit to make ends meet while paying off your debts, this will negatively affect your credit score. The lower your credit score, the harder it will be to get a good interest rate on your mortgage.

Improve Your Credit Score

There are a lot of factors that go into determining your credit score. Healthy financial habits will help keep your credit score high. These include paying off debts on time and using a smaller percentage of the credit that’s available to you. It’s also a good idea to avoid new debts like a car loan if you’re planning on buying a house in the near future. It will also help you to pay your payments on time, this is an easy way build credit.

Get Pre-Approved for a Mortgage in Advance

Another great way to make the home buying process easier, especially if you have student loans, is if you get pre-approved for a mortgage in advance. That way, you’ll know your budget going in, and there’s no rush to secure a mortgage in the middle of the house-hunting process.

When you’re pre-approved, it can also help sway sellers, because they know you’re serious about your purchase and have taken the time to come in with all your documentation ready to go.

Make the Home Buying Process Easier With Homie Loans

Having some student loan debt doesn’t mean the housing market is closed to you. With some careful financial planning, you can continue paying off your student loan while searching for your dream home.

If you want a partner in the process that can also offer substantial savings on a great mortgage rate, try Homie Loans. You can take advantage of our great rates even if you’re not buying with a Homie agent! If we can’t offer you the best locked loan rate, we’ll give you $500 in cash.*

Read more about preparing your finances for homeownership!

Tips for Affording Your First Home
Common Home Buying Fears and How to Overcome Them
What Are Closing Costs?

*Subject to Terms & Conditions