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Buying Your First Home and Still Paying Student Loans

buying a home while paying student loans

You know why buying a home is a good idea. Mortgage payments can be less than what you’re paying in rent. Your home is your biggest investment, one that appreciates over time. You’ve heard it all. But if you’re carrying student loan debt, buying a home while paying student loans might feel like a pipe dream.

Buying a Home While Paying Student Loans: It’s Totally Doable

If you’re struggling with student loan debt, you’re not alone.

An estimated 44 million Americans have racked up a total of $1.4 trillion in student loan debt. If the recent two-part series from the podcast, Death Sex & Money, is any indication, a whole lot of those 44 million people are living with stress and guilt and worry. And major life decisions like marriage, parenthood, and home ownership, are being directly affected.  

If you’ve believed your student loan debt would stop you from ever owning a home, you’re not alone.

Many people believe that carrying student loan debt has to stop them from buying their first home. Or even ever buying a home at all. Yet, while almost half of Millennials carry student debt, they also make up 34 percent of homebuyers today.

What’s their secret?

How Student Loans Affect Qualifying for a Mortgage

The first key is to understand how your student loan debt affects the mortgage process. Then you can make informed decisions to improve your eligibility as a homeowner.

Student loans can negatively impact your debt-to-income ratio.

What’s your debt-to-income ratio? Basically, it shows how your monthly debt obligations compares to your income. Typically, lenders like to see a ratio of 43% or less but can go as high as 57%.

You can calculate your ratio by adding up how much you pay for all debt including auto loan(s), student loan(s), credit card(s), and personal loan(s). Once you have the total of your monthly debt payments, divide it by your monthly gross income.

Paying student loans vs. saving for a down payment.

Paying down those student loans can definitely make it tough to save towards anything else, including your first down payment. But a huge down payment isn’t as necessary as it used to be.

A larger down payment can help you qualify for lower interest rates, but it’s not required in today’s market. In fact, today, there are loan programs designed to help first-time homebuyers get into the home of their dreams without having to put down a massive down payment. With a loan like our 1% Down with Equity Boost, you can get a mortgage with a down payment that’s typically less than one month’s rent. Even if you’re still paying down those student loans.


How to Qualify for a Mortgage with Student Loan Debt

Keep in mind that everyone’s situation is different. These tips might work for you. But be sure to do your own research, too.

Keep an eye on your credit score

The best way to qualify for a mortgage, especially if you also owe money on your students loans, is to make sure you keep your credit score in check.

This is what lenders are going to use to verify how responsible you are and if you are a good candidate to take on more debt. The higher your credit score is, the lower the interest rate you can get.

To improve or keep your credit score in good shape:

  • Make your payments on time
  • Keep your balances low
  • Don’t use all the credit that’s available to you
  • Avoid opening too many new lines of credit

Save up an emergency fund

The unexpected happens to everyone. If your A/C breaks, you lose your job, or your dog needs surgery, how prepared will you be?

Lenders want to know that, the unexpected happens to you, you’ll still be able to make those mortgage payments. By building up an emergency fund that can be used as a backup, you’ll improve the way lender’s view your candidacy.

Refinance your student loans

As we mentioned above, your debt-to-income ratio is a key factor in how lenders determine your eligibility for a mortgage. And those student loans can take a bite out of that ratio.

Refinancing your student loans can help. Typically, when you refinance, you can get lower monthly payments and save money on interest. That’ll not only lower your debt-to-income ratio. It’ll also free up some cash you can put towards your down payment or your emergency fund.

How Lendid Home Loans Can Help

Interested in figuring out how you might be able to buy your dream home, even if you’ve got some student loans?

With Lendid’s easy-to-use mortgage calculator, you can determine the loan amount and type that will best fit your needs. Then give us a call to see what we can make happen!


Topics: Home Loans