There are multiple factors that can affect the loan process when buying a home. However, a frequent roadblock for multiple people is student loan debt. 

The Federal Reserve mentions that 43% of college graduates have taken on student loan debt. The debt can cause higher debt-to-income ratios that lenders tend to stay away from and can make saving for a down payment harder. 

But don’t be discouraged if you have student loan debt and want to buy a house! While it makes the process more difficult, it isn’t impossible. Check out the steps below to help you reach your goal of buying a home when you have student loan debt. 

Work on your credit score.

Your credit score is a big factor in a lenders eyes. A higher score usually means an easier approval process, and lower interest rates.

Be sure you’re consistent and timely with your student loan payments. Pay your bills on time, keep paid-off accounts open, avoid applying for new credit cards or loans, and lower your credit utilization rate. 

Unfortunately, a credit report can be miscalculated or have errors, so be sure you are keeping an eye on your credit score and report any issues to the credit bureau immediately.

Manage your debt-to-income ratio.

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. A lender will look at your percentage when evaluating your application to ensure you have the cash flow to handle a potential new payment. 

The best way to lower your debt-to-income ratio is to:

  • Pay your debts where possible
  • Earn more income
  • Refinance loans
  • Or a mix of all three!

Get pre-approved for a mortgage.

Be sure to get pre-approved BEFORE you start your house search. A pre-approval lets you know how big of a loan you will likely qualify for, which will help you narrow down your house search and ensure your stay on budget. 

You will need to: 

  • Provide income, debt, employment, past residences information, and more.
  • Have an idea of what down payment you will be able to afford.

Ensure your pre-approval process goes smoothly by organizing these documents before you meet with a lender.

Look into down payment assistance.

If it seems like it will be hard to save up for a down payment, you’re not out of luck! There are multiple options available that can help cover your down payment and closing costs. Here are a few:

  • FHA Loans- a federal loan through the Federal Housing Authority
  • VA loans- military service option
  • USDA loans- zero down option for rural and suburban homeowners
  • Down payment grants- interest-free and don’t need to be repaid
  • Second mortgage- program options that give you assistance with low-interest loans

Chat with a professional about your options. There are multiple federal, state, and local assistance programs available.

Achieve your goal!

Securing a loan for a house may seem like a daunting task when you have student loan debt. Fortunately, there are options. Take advantage of the opportunities and programs available, work on your credit and debt-to-income, and chat with trusted professionals and you can achieve your home buying goal. Chat with a Freedom 512 Realtor® today to find your dream home.

Start typing and press Enter to search