Four Tips For Buying A Home With Large Student Loans


Individuals with large amounts of student loans may feel like this debt will prevent them from becoming homeowners. Fortunately, your dreams of home ownership and your student loans can peacefully coexist. Here are a few tips for buying a home when you have a lot of student loan debt.

1. Keep Your Debt-to-Income Ratio in Line

One of the guidelines lenders use when deciding to approve a mortgage is the borrower's debt-to-income ratio. This figure tells the lender how much of your income goes towards debt repayment. For example, if you have a monthly gross income of $5,000 and have student loan payments of $600, this results in a debt-to-income ratio of 12 percent.

Though some lenders accept debt-to-income ratios up to 43 percent, it's ideal to keep this ratio under 36 percent for the highest approval odds and most favorable loan terms. Know that this 36 percent figure also includes your mortgage payment. A secondary guideline states that no more than 28 percent of your income should go towards your mortgage payment.

With a $5,000 gross income, this means that your mortgage payment should not exceed $1,400 and your total debt should not exceed $1,800. If your student loan has a monthly payment of $600, this leaves you $1200 to use for your other debts, including your mortgage payment.

Improve your debt-to-income ratio by paying down your other forms of debt, such as your car loans and credit cards. 

2. Explore Different Repayment Options

If your debt-to-income ratio is making it difficult to secure mortgage approval, see what options are available for your student loan payments. You can lower your monthly payment by opting for another repayment solution, such as income-based repayment or extended repayment. 

You may have multiple student loans with varying interest rates. If possible, refinance them with a single lender at a lower interest rate to lower your payment and provide you with more funds to use for your monthly mortgage.

3. Apply for Down Payment Assistance

Reduce the amount of your monthly mortgage payment by applying for down payment assistance. A larger down payment means that you have to finance a smaller portion of your home's purchase price. 

There are different types of down payment assistance. One type is a grant that you never have to repay. Another form is basically a long-term loan that you make small payments towards or don't repay at all until you sell your home. 

4. Take on a Roommate

If you have secured mortgage approval but feel like your budget is too tight for your comfort, take on a roommate. This will put more income into your budget each month, allowing you to continue to pursue other financial goals, such as saving for retirement or paying down your debt.


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