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Can you buy a house with student loans?

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    According to the National Association of Realtors (NAR), 51% of renters state that student loan debt prevents them from buying a house. If student loans have had an impact on your affordability, this statement may be especially relevant to you. However, there is a key difference between affordability and ability.

    While student loans may often feel like a deterrent to taking out a mortgage, they may not be. In fact, 37% of first-time homebuyers report having student loan debt. And while not all mortgage holders report having student debt, there are mortgage holders who carry other forms of debt.

    The good news? Lenders don’t necessarily look at the type of debt you have, but how much debt you have when considering you for a mortgage. So, if you’re a potential borrower worried about student debt, you may still be able to buy a house with your student loans.

    Do student loans affect your ability to buy a house?

    Yes, student loans may affect your ability to buy a house, but they don’t automatically disqualify you either. A lender’s decision relates to the amount of debt you carry, rather than the type of debt, so student loans may affect your ability to get a mortgage in the sense that they affect your debt-to-income ratio.

    Student loans and debt-to-income (DTI) ratio

    Debt-to-income ratio is one of the main factors lenders assess when evaluating an applicant’s eligibility and determining how much house they can afford. DTI ratio refers to your monthly payments (debt) vs. your monthly income. A high DTI ratio may have an impact on your loan eligibility, or at the very least, the rates and types of loans available to you. It all comes back to your assessed risk of defaulting on your loan. From a lender’s perspective, that risk typically rises as a greater percentage of your income goes toward repaying existing debts.

    Student loans may affect your ability to buy a house because they directly affect your DTI ratio. However, there are several other factors that impact your mortgage eligibility, including your income, credit score, assets and employment history.

    How to get a mortgage with student debt

    If you’re looking to get a mortgage with student debt and are wondering how, there are a few ways that may help increase chances of getting approved:

    • Pay off your debt as you can: By paying off your debts, you help to lower your DTI ratio. As mentioned, DTI ratio is one of the major factors lenders look at when determining mortgage eligibility.
    • Consolidate your debt: Consolidating your debt means rolling multiple existing debts like credit cards, student loans and more into one loan, which may make it easier to track payments since they’ll go to a single source.
    • Refinance: Refinancing your loans may mean switching your existing loan for one with a different interest rate, with the goal of making your monthly payments more affordable. This may help reduce your DTI ratio.
    • Generating income: Another approach to improving your DTI ratio is to tackle the other end of the equation by finding a way to generate additional income. This may mean trying to get a promotion or creating an additional source of income through a side hustle.

    Homebuying programs for student loans

    Homebuying programs for student loans are meant to help people with student loan debt afford or qualify for a mortgage and, eventually, buy a house. Some programs may be in the form of down payment assistance grants, while others may be more particular to the type of property you’re looking to buy. There are certain programs meant specifically for first-time homebuyers as well.

    The Transforming Student Debt to Home Equity Act of 2022, for example, is an initiative that requires the Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) to establish a pilot program that provides eligible applicants with federal student loan debt assistance in purchasing eligible properties.

    In summary

    While buying a house with student loans may feel difficult, having student loans doesn’t automatically prevent you from taking out a home loan. However, student loans do impact your debt-to-income (DTI) ratio, which is a key factor considered by lenders determining the kinds of mortgages you might get approved for. There are a few ways to help lower your DTI, such as trying to consolidate or refinance debt, and there may also be homebuying programs for mortgage applicants with student loans worth looking into. It’s comforting to know that yes, you may be able to buy a house with student loans — you just need to consider how this new obligation will affect your existing ones.

    Take the first step and get preapproved.

    Have questions? Connect with a home lending expert today!

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