Deciding to buy a home with thousands of dollars in student debt can be a difficult decision. It’s challenging enough to break into the housing market while rents keep rising and the amount of low-value homes remains limited in most areas. However, recent data shows that home buyers with at least a bachelor’s degree are minimally affected by their student debt when shopping for homes. Below are some quick tips to help you prepare to acquire a home mortgage while carrying significant student loan debt.
Make a budget
Paying-off student loan debt should be a financial priority. Then, figure out where you’re spending the majority of your money. This will help you figure out where to make meaningful financial cuts instead of meaningless ones (like buying single-ply toilet paper or generic brand Q-tips). Once you determine where your money is going, try to cut out extra spending so you can put more toward your student loans whenever possible. This means limiting meals out, having multiple roommates rather than living alone and forgoing cabs or Uber in favor of public transportation. Having a budget will help you build a strong credit history as long as you are making all your payments on time. You can even improve your debt-to-income ratio by paying down credit cards and other consumer debt. This will also help you balance your competing goals of paying down debt and saving for a down payment.
Determine a debt payoff timeline
Put together a sensible timeline of how quickly you may be able to pay off all your debt. Having a timeline can change the way you look at your debt and help you stay on track. Don’t let student loan debt hold you back from buying a home. It’s important to make sure that you don’t take on more than you can handle, but it’s also important to balance student loan debt with other important financial goals. Make sure you purchase a home that allows you some room in your budget to focus on other items for your future.
The best way to determine if you can comfortably afford to buy a home while still paying off student loan and other debts is by meeting with a mortgage loan officer for a free consultation. By providing some basic information, your loan officer will review your information and provide you with a letter showing how much a bank would approve to lend you. A preapproval is not a commitment to lend, but it does give you an idea of your maximum loan size and will help speed up the loan process if you decide to buy.
Contact a financial advisor with questions pertaining to managing your finances and a mortgage professional to learn more about obtaining a pre-approval and to learn more about the mortgage process.