Can You Buy a House With Student Loan Debt?

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Can You Buy a House With Student Loan Debt?

Nowadays, buying a house is becoming more important than ever.

A roof over your head is one of the most basic human needs. What’s more, it’s a major part of the classic American dream.

Due to the pandemic, people worldwide have mostly cloistered themselves at home. Folks have to minimize outdoor exposure to avoid contracting the virus.

Unfortunately, student loan debt makes it difficult for many Americans to even qualify for a mortgage.

Lots of folks still haven’t repaid their balances since college. It hobbles their finances, so they can’t afford numerous essentials like buying a house.

Fortunately, there’s still hope as people could still buy a house with student loan debt.

You could start by building good credit, so you’re more likely to receive a home loan. For further assistance, you could apply for one of the available payment programs.

Credit Score

Credit Score

The three-digit number on your credit report is the key to most credit services. 

Credit ratings help lenders decide the personal loan terms and conditions for borrowers. Moreover, it changes depending on your credit card debts, credit utilization, and other criteria. So that

This is probably a reason why you struggle to buy a home with student loan debt. Failure to pay student loans greatly impacts your credit rating, so it isn’t easy to get a pre-approved mortgage.

Most people nowadays have no means of repaying their debts due to pandemic lockdowns. They’ve lost their jobs and shuttered their businesses, cutting their sources of income.

Still, this doesn’t mean that you can’t buy a home with student loan debt burdens. Start by building good credit by submitting all debt payments on time, not just student loans.

You could also perform debt reduction strategies such as debt consolidation and debt settlement. Additionally, you could request assistance from nonprofit credit counseling agencies.

Improve Your Debt-to-Income Ratio

Your DTI ratio could be another reason why you can’t buy a house with student loan debt.

As the name suggests, it compares your unpaid balances with your current monthly income. Lenders gauge how well you’ll handle their debt using this information.

The ideal debt-to-income ratio is around 28% to 36% to qualify for most mortgages. As you may have guessed, you should act on your debts or income to improve this rating.

Use debt reduction strategies like budgeting and credit counseling to reduce outstanding balances. You could also discuss with your lenders regarding your current repayment plan.

If you can, increase your income by getting additional jobs. You could apply for remote work or sell stuff on websites like Etsy or eBay.

Furthermore, applying for an income-driven repayment plan could help you buy a house with student loan debt.

This will adjust your monthly student loan payments with your salary. Depending on your situation, this plan may help you repay easier.

There are many income-driven repayment plans, each with its criteria. Please check the US Department of Education website for more information.

What’s more, refinancing could help you buy a house with student loan debt.

This replaces existing debts with a new one so that you could repay that instead. As a result, you may get better terms like a lower interest rate.

You could refinance your student loans, so you pay less every month. In turn, you could allocate more for your new home loan.

However, you may forfeit federal student loan benefits if you refinance. Also, you should research your refi options carefully, or you might end up with higher rates!

Payment Assistance

Payment Assistance

Some payment assistance programs help people buy a house with student loan debt.

For instance, you may apply for a down payment grant. These charge zero interest, and they don’t need to be repaid.

You could also get a forgivable second mortgage. This will be forgiven once you’ve resided in the home for a certain number of years.

You must meet certain requirements to access these payment aid programs. For example, you might need a certain income level or work in a specific profession.

Similar to typical credit options, your credit report will also be scrutinized. Nevertheless, these programs may help you buy a house with student loan debt.

Look into First Time Home Buyer Programs

You could buy a house with student loan debt with the help of payment aid programs.

Specifically, they enable some people to afford the down payment. Some federal loan programs could reduce this amount despite your student debts.

For example, you could pay as little as 3% for conventional loans. However, you will have to pay private mortgage insurance until the loan-to-value ratio lowers below 80%.

The down payment for FHA loans is typically 3.5%, requiring a measly credit rating of 580. You could also check payment assistance from the USDA and the Department of Veteran Affairs. 

These could help you buy a house with student loan debt and reduce monthly mortgage payments. Please check the corresponding websites for each government office for more information.

Final Thoughts

Student loan debts don’t have to prevent you from buying a new home.

You could improve your credit rating by submitting monthly payments punctually. Mortgage lenders prefer borrowers with good credit, so they usually get home loans easier.

Meanwhile, you may employ debt reduction strategies to improve your DTI ratio. If you could get a side gig or sell your unused stuff, those could boost your income.

You can apply for payment assistance if you meet specific criteria. Also, you can choose many first-time buyer programs by federal and state governments.

Other experts could also help you buy a house with student loan debt. Financial advisors can help you manage finances better, so you may afford that new house. 

You could also ask a mortgage broker for help. These professionals could refer you to mortgage lenders that suit your needs.

Free online resources could provide more guidance regarding student loans and mortgages. They help you understand all the viable options so that you could select the best ones.

You may check out our other articles for more financial tips.