How to Buy a House And Stay on Top of Your Student Loans
This post was updated on 2/19/2020
Approximately 43 million adults in the United States carry student debt, with the average borrower owing more than $30,000. Because student loans seem to have such a large impact on a person’s ability to take out a home loan, saving for the American Dream of homeownership can feel further away than ever.
While Millennials have been known for wanting to break the traditional barriers of adulthood, they still consider purchasing a home to be a major milestone and hope to reach it if they haven’t already. According to a recent Business Insider article, 61% of Millennials said they’ve delayed buying a house because of their student loan debt.
So if you have a large amount of student loan debt and still want to be a homeowner, how do you make that happen?
Review All of Your Debts
Before considering homeownership, it’s critical to know how much overall debt you have. Just because you are paying off student loans doesn’t mean you’re at risk for not being approved for a home loan. However, most lenders will look for a debt-to-income ratio of 36% or less.
When you begin to look at your financial portfolio, student loans are only part of the big picture—remember to include debts such as auto loans and credit cards on which you may have a balance.
Create a Budget
Once you’ve reviewed your debts, it’s time to create a budget with mortgage payments in mind. Completing a budget can give you a better idea of what flexible funds you may have to put towards a down payment and possibly supplement additional homeowner costs, such as property taxes and insurance. If you’re currently renting, there’s also consideration that your currently monthly rent payments will be put towards a mortgage payment instead.
Find a Mortage Loan Officer You Trust
If you’re ready to start house-hunting, it’s time to speak with a mortgage loan officer to ask about the preapproval process. The benefit of having a qualified, friendly mortgage loan officer, is knowing you can speak to him/her about your student loans and any other debt questions you may have, even before you apply.
How to Make Student Loans More Affordable While Saving for a Home
Income-Driven Repayment
Most student loans offer an income-driven repayment plan, which allows you to cap your payments between 10-15% of your current income and the remainder to be forgiven after 20-25 years. *Typically with income-driven repayments, you may be paying on gained interest longer than anticipated.
Deferment or Forbearance
While not the ideal repayment situation, your student loan provider may walk you through the details of going into deferment or forbearance. This type of plan is best used in an emergency situation and can typically last up to two years. Because this is considered an emergency alternative, it’s important to remember that unsubsidized loans will still accrue interest during this time.
Refinancing
If you have a good, steady income and credit score, but still find it difficult to repay the asked amount on your student loans, you may want to consider refinancing for a lower interest rate and better terms.
