Currently, student loan debt is estimated to be worth around $1.56 trillion, with more and more millennial homebuyers expected to be affected. Around 43% of higher-educated people said that they have postponed buying a home due to their student loan amounts. But, student loans don’t necessarily have to prevent you from buying a home, so long as you are comfortable accepting additional debt.
Carefully considering your options, whilst also learning about the best practices needed to buy a house whilst still owing student debt, means that you are able to make that choice make sense within your financial situation. The majority of millennials are wanting to own a home of their own, but many can’t or are too afraid of the repercussions due to student debts.
How Are Student Debts Affecting Millennials?
Millennials are the first generation in a number of decades to be forced to postpone saving up for their own homes, simply because so much of their student debt repayments take up a large majority of their monthly income. It is no surprise that the debt related to receiving higher education has reached a “crisis” level.
This harsh reality is not only damaging their prospects when it comes to buying a home, but it has also created new financial dynamics whilst their student debts keep them from getting involved in other forms of long-lasting debt.
Statistics have shown that millennials are in less credit card debt than Generation X’ers as they are more aware of the impact this will have on their credit scores. But, with the average millennial having $34,000 in student loan debt, it is vital that the root of this issue is investigated further.
What Can Millennials Do?
Whilst a large majority of students are unaware of how they can get out of their student debt struggles, there are some things that you can do when you are looking to buy your own home whilst still having student loan debts.
Improve Your Credit Score
When it comes to financial institutions deciding whether or not to lend you money, it is almost certain that they will take your credit score into consideration. Thankfully, it is still possible for you to maintain a good credit score level, even if you do have student loan debt. Your student loan debt is unlikely to affect your credit score unless you regularly miss repayments. If you want to boost your score, then there are some things you can do.
- Pay your bills on time. Making sure your payments are on time is one of the most important factors when it comes to your credit score. Ensure that you are paying them in full either before or on your due date to build up a financial reputation.
- Don’t close old accounts. Whilst you might think that closing old credit card accounts is the best way to go when trying to fix your credit score, this often isn’t the case. If you have an old account which is in good standing, then this can help your credit.
Decrease Your Debt-To-Income Ratio
As with most student loan refinancing lenders, a typical mortgage lender is likely to calculate your standard debt-to-income ration, whilst determining your ability to make the monthly payments on your mortgage. When you buy a house with student loan debt, you must be aware of the impact that your loans are having.
To determine whether you are eligible for the best rates, many lenders follow the 28/36 Qualifying Ratio. This means that you must not spend any more than 28% of your gross monthly income on overall housing expenses and no more than 36% on any debt services. You can still buy a home if you don’t meet this rule and lenders are still happy to lend you money if your DTI is high, but it is up to you to decide whether you’re comfortable taking on another debt. If your DTI is high, then there are some steps you can take to reduce it.
- Increase your income with a second job
- Refinance your student loan to get a lower monthly payment
- Look at short term options if you have almost finished paying off your loan. Open bridging loans enable you to bridge the gap between payments and are ideal for short-term loans.
Is Buying A Home With Student Loan Debt Right For You?
Even if you have a good idea of how you are going to buy a home with student debt, you must consider if you are truly ready for home ownership before you jump straight in. Are you comfortable with your income? Are you able to afford mortgage repayments on top of your loan repayments? Consider what matters the most to you and plan accordingly and know that once you have a plan in place for buying a home, then there is nothing wrong with making that leap – even if you do have student loan debt.
