Can I Buy a House When I’m Paying Off a Student Loan?

Q:  I graduated college with a huge student loan debt, since then I have started a steady job. I’ve been making regular payments toward paying down my loan. Is it possible for me to buy a house while I’m still paying off this debt?

A:  Student loan debt that is managed responsibly should not hold you back from purchasing a house. There are several important factors to consider before making this choice and steps you’ll want to take before you start house-hunting.

Are you ready to buy a house?
  Do you know the city or neighborhood you want to live in?
  How long will your daily drive to work be?
  Are you just starting out in your career and may be relocating soon?

Depending on how you answered these questions, will determine if you should look at your finances to determine how much of a purchase you qualify for, or renting might be your best option at this time.

Getting started: Boost your credit
Once you have determined you’re financially ready to purchase a home you will want to review your credit. Credit wellness is the primary factor home lenders consider when deciding if you’re eligible for a mortgage. Your interest rate is also based on your credit.

Some ways to boost your credit score are:
  Pay your bills on time, set up automatic payments to make this effortless
  Keep your credit card balances less than 30% of the limit
  Establish a share secured loan or credit builder loan with your local credit union
  Don’t close old accounts or open new ones (doing either of these could significantly lower your credit score)

How high is your debt to income (DTI) ratio?
Lots of young college graduates think it’s impossible, or difficult, to obtain a mortgage when carrying student loan debt. In fact, 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. As mentioned above, a student loan that is handled well should not be a deterrent to getting a mortgage.

Taking out a mortgage increases your monthly debts; therefore, lenders will review your income and debts to determine you qualify based on your DTI. If your DTI is high you may want to pay down or pay off some of your credit cards. You many also consider refinancing your student loans to lower your monthly payments.

Determine how much house you can afford
Before you start shopping for a home you should find out how much house you can afford. The best way to obtain this information is by applying for a pre-approval from a home lender. This will tell you exactly how much you can afford and assure sellers you’re serious about buying.

If you don’t need your pre-approval just yet but want an idea of how much you’ll need for a down payment, you can use an online mortgage calculator to get your magic number.

Start saving now for a down payment
Once you have your numbers you will need to save up for a down payment. Trim your budget in any way you can. Set up an automatic monthly transfer to you SACFCU savings account so your money will grow.

Ready to take the next step?
Call, click or stop by a SACFCU branch to find out about our home loans. Our fantastic rates and hassle free pre-approval process make us an excellent choice!