Buying a House with Student Debt
We get questions regarding buying a house with student debt all the time. Can I even get a mortgage when I have student debt? How can I save for a down payment while I’m paying off student debt? I have a mortgage and student debt, should I start paying one off early?
With the sheer amount of student debt growing along with the number of people accruing it, it’s no surprise we’re asked these questions so frequently. Student debt is a serious problem for the younger generations. A recent study found that 29% of respondents have delayed purchasing a home because of their student debt.
Can I even get a mortgage when I have student debt?
Yes, you probably can. The answer to this question varies on a case-by-case basis. A good indicator of whether you can afford a mortgage with your student debt is to look at your debt-to-income ratio.
Your debt-to-income ratio is how lenders assess your creditworthiness. In the simplest of terms, your debt-to-income ratio is the percentage of your monthly income needed to cover your monthly payments, such as debt and housing expenses. You want your ratio to be as low as possible, but, in most cases, lenders will accept anything up to 43%.
How can I save for a down payment while I’m paying off student debt?
Saving while paying off debt can be tricky. Since both student loan and mortgage rates are so low, we recommend only making minimum payments on your loans. That being said, each person’s financial situation is a little different, meaning you may be able to pay a little extra on your loans. Whatever you do, we recommend diversifying your financial plan – a good long-term financial plan is a well-balanced plan.
It is important to keep in mind that with debt, you’re not only looking at your current financial situation, but also your situation in the years to come. So, you need to make a decision that makes sense now and helps to prepare you for the future. Meaning, you could pay off all of your student debt right now, and be completely rid of it, but if you do, you’ll likely miss out on several years of saving for a mortgage and retirement – and all of the interest that would have accrued.
I have a mortgage and student debt, should I start paying one off early?
Well, this is a tricky question. Both mortgages and student debt are considered ‘good debt.’ That being said, they are still debts that will need to be paid off eventually. And, in paying them off early, you will save money on interest and have more financial freedom in general.
Again, this decision depends on your individual situation. What we can tell you is that you should not start paying either off early if you haven’t done one or more of the following items:
- Paid off all of your consumer debt.
- Saved an emergency fund of 3-6 months’ worth of expenses.
- Contributed the full amount your employer will match to your 401K account.