Don’t Let Student Debt Keep You from Homeownership
College grads, don’t be fooled. You can still purchase a home with student loan debt!
A 2016 study conducted by the Student Loan Report shows that student loan debt is a major obstacle impacting the ability for college graduates to make important financial and life decisions. One of the most startling findings of this report is that 63% of those surveyed reported that student loan debt was affecting their decision or ability to buy a home.
Even more disappointing is the fact that most of today’s college graduates are Millennials—the nation’s largest generation. Which means that these numbers don’t just affect those with student debt—they affect the greater national economy.
While student loan debt is a common reason for the decline of homeownership among Millennials, it’s still possible to obtain and sustain a mortgage payment, even while you have student loan debt. Think about it: If you’re paying rent, you’re already balancing two monthly payments—one for school and one for housing. We’ve come up with a few strategies that may help people with student loan debt qualify for a mortgage.
If you haven’t already, now is the time to establish attainable financial goals to help you avoid excess spending and increase your savings toward a home. Remember that, in order for these goals to make a difference, they will be challenging and will probably cause you to make lifestyle changes.
Ask your employer to consider helping you repay your student loans. There may be a program you didn’t know about. In recent years, more and more companies are catching on and are starting to offer loan repayment or higher education benefits. This may look different for every workplace, and yours may not offer such a program yet, but it’s worth asking.
Early in your home search, try to aggressively pay off as much of your student loan debt as possible. Make a calendar and stick to high monthly payments that will require you to sacrifice in other areas of your budget. The less debt you have when you contact a mortgage lender, the easier it will be for you to qualify for a mortgage.
The last thing you want is more debt. Pay off your credit card debt, if any, as fast as you can and try to avoid accumulating more. Limit yourself to one or two credit cards and make a commitment to only charge what you will be able to pay off each month. If you must carry a balance on a credit card, transfer the balances to the card with the lowest rates. In addition to credit cards, don’t apply for other loan money, like financing a new car or piece of furniture.
Work to pay off all of your bills—especially utility bills—by the due date each month. This discipline is essential to raising your credit score and obtaining the best possible interest rates on, not only mortgages, but other types of loans too.
When you come across extra money, like bonuses, cash gifts, income tax returns, overtime pay, $20 in your couch cushion, etc., put all of that cash immediately into your down payment savings account. It will be tempting to take yourself shopping! But if your priority is truly homeownership first, make it a point to deposit the full amount in a safe place.
Finally, carve out some time to write up a budget to be sure you can actually handle a mortgage payment in addition to your student loan debt. If you have trouble with the numbers on your own, enlist a budget-savvy friend or family member to help you set realistic goals.
Truth is, student loan debt should not keep you from purchasing a home. Ultimately, as a mortgage lender, we simply want to see that, even with your student loan debt, you will still be able to make consistent payments on your home loan. With the right financial management and by using strategies like these, you too could be a homeowner regardless of your student debt.