January 25, 2019 | Patty Smith
It is all over the news, the sky-rocketing student loan debts.  The media portrays high student loans as doom and gloom but in reality, this is good news.  Why?  More youth are realizing that a proper education will lead to a more profitable, financially secure lifestyle, one that includes home ownership.  The statistics are that one in four adults are paying off a student loan and on average, the student loan borrower has $37,172 of debt to repay.  To some, they see this as a deterrent but others, this is only a small nuisance as one considers the purchase of their first home.

The average salary of a college graduate is $1,137 weekly or $59,124 per year compared to an adult with a high school diploma at $678 weekly or $35,256 per year.  That is +68% increase in disposable income and if you budget your money properly, a college graduate can easily afford to purchase a home even with the student loan debt.

Can you buy a house if you have student loans?  Absolutely YES.  There are 2 ways in which your student loan can impact your ability to get a home mortgage: by affecting your debt to income ratio (DTI) and by shaping your credit history.

DTI ratio measures your monthly debt payment as a percentage of your monthly income.  The payments you would be making on a mortgage are included in those debt payments when you apply for a mortgage.  The more debt you have, the higher your DTI ratio becomes and this does include student loans.  The concern is that because student loans count against your DTI ratio, before you apply for a mortgage, you need to be earning enough income to offset the impact of the DTI ratio.

HOT TIP: When applying for a conventional mortgage, sign-up for an income-driven student loan repayment program before you apply for a home mortgage.

The second way your student loan can affect your ability to purchase a home is how your student loan affects your credit score.  As it turns out, student loans and credit scores form a powerful combination.  Together, they can make or break your financial future.  Managing your student loan debt can and will positively affect your credit score and here are a few strategies to make that happen.  If you know you are going to be delinquent on a student loan, contact the lender and explain to them the situation.  Your situation may meet the Federal deference or forbearance program. Deferment can freeze your interest and principle up to 3 years while forbearance allows you to decrease your payment or forgo your payment up to a year.

HOT TIP: Use your student loan to improve your credit and build credit history.

You can take advantage of student loans and actually use them to improve your credit score and in turn, improve your chances of purchasing a home.  If you are budgeting wisely and making the monthly payments, you will more than likely see a big boost to your credit score over the time of the loan.  This is significant because we know that college-aged individuals have a hard time building credit.  Young adults are having a harder time getting loans and credit cards and are turning to dangerous options with hidden fees and callous terms.  So use your student loan as a tool to positively impact your credit and boost your credit score.

Below are 8 actionable steps you can follow to ensure your student loan positively impacts your chances of buying your first home.

  • Focus on your credit score
  • Manage your debt to income ratio
  • Pay attention to your payments
  • Get pre-approved for a mortgage
  • Keep credit card utilization low
  • Look for down payment assistance (FHA loans, USDA loans, VA loans)
  • Consolidate credit card debt with a personal loan
  • Re-finance your student loan
If you have a student loan debt, buying a home is not impossible.  In fact, your student loans can be beneficial for your financial future and allow you to increase your ability to not only purchase your first starter home, but upgrade to your dream home.  As a college grad, you are smart and capable and the opportunities in front of you are endless so don’t let a small student loan debt deter you from feeling the pride and joy of purchasing your first home.
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