Do Student Loans Affect Buying a House?
If you’re one of the more than 40 million Americans who have student loan debt and you hope to buy a house one day, it’s useful to know how student loans affect buying a house. Student loan debt doesn’t exclude anyone from buying a house, but it can make it more challenging. Continue reading to learn the ways that student loans affect buying a house!
Student loan payments can take a large chunk of your income. It can be difficult for people with student loan debt to save enough to make a down payment. According to the National Association of Realtors, in 2017, 83% of non-homeowners were delaying buying a house because of their student loan debt. In most cases, student loan payments prevented them from saving enough for a down payment.
One of the biggest factors that lenders consider when evaluating an applicant’s eligibility for a mortgage is their debt-to-income ratio (DTI). This number is a percentage that compares your debt, including student loans, to your annual income. Lenders want to see an applicant with a low debt-to-income ratio. This shows that the applicant is able to manage their debt responsibly, and that they will pay their mortgage.
To calculate your DTI, add up all of your recurring monthly debts–for example, student loan payments, credit card payments, and car payments. Use the minimum payment amount for each debt. Then, divide that number by your gross monthly income–your earnings before taxes and other withholdings. Multiply that number by 100 to get a percentage.
Generally, a DTI of 43% or less is ideal for lenders. If your DTI is greater than 50%, you may want to focus on paying off your debts before buying a house.
Another number that can determine your ability to buy a house is your credit score. A credit score is a statistical number that is used to evaluate a borrower’s creditworthiness. Credit scores consider factors like a borrower’s total debt and payment history. It can be used to evaluate how likely the borrower is to repay their debts. Mortgage lenders want to see a high credit score.
Student loans can have a positive or negative impact on your credit score. Making student loan payments on time and in full can improve your credit score. Missing payments or allowing loans to go into default can harm your credit score, making it more difficult to buy a house.
See also: How do student loans affect credit?
Before you consider buying a house, be sure to understand how your student loan debt may affect your ability to do so.
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