buying a home

How student debt affects choices about buying a home

Think about the future before you apply for that loan.


Student debt has become an inevitability for anyone who wants to study today. However, the amount of debt you accrue as a student, as well as your ability to clear it, can significantly impact future choices. In particular, if you’re hoping to buy a home after you graduate, you may find that the student debt you have acquired at university has an impact on how easy this is for you.


Can you buy a home if you have student debt?


There are no rules that say you can’t buy a home if you still have student debts to pay off. In fact, there are many people who are still making payments on either private or government student loans who do manage to successfully buy a home. However, according to the personal finance experts at Solution Loans, it’s important to remember that lenders will still have to take into account the amount of debt that you have, regardless of what kind of debt it is. This can affect your application for a mortgage in a number of different ways:


  • Debt-to-income ratio. When lenders make decisions about an applicant for a mortgage they will look at how much income you have, as compared to your levels of debt. This will show a lender how much of your gross monthly income (i.e. income before taxes) is going to be sucked into debt repayment and what that will leave you with afterwards. If the debt-to-income ratio is too high then you won’t be an attractive prospect for a lender and you’re unlikely to get approved for a mortgage.
  • Mortgage affordability criteria. Mortgage lenders today are much more focused on affordability i.e. whether you will be able to make the repayments on the mortgage at the same time as meeting your other financial responsibilities. If you have high levels of student debt (or even an average debt) then this may affect the affordability of a potential mortgage. A lender may look at what you’re left with after debt and mortgage repayments and make the judgment that you’re unlikely to have enough to live on and would, therefore, be default risk.
  • Defaults and missed payments. If you’ve struggled to meet the payments on student loans then this is also likely to affect whether a mortgage lender sees you as a good option as a borrower. Even if there was a good reason for missing a payment – and you made the payment relatively quickly after it was missed – it could still give a lender a reason to pause. It’s also important to note that missed payments could affect your credit score.


Tips for buying a home if you have student debt


  • Overpay your student debt to clear it as soon as possible
  • Increase your income – ask for a pay rise or find a new, better paid job with the qualification you’ve earned studying
  • Don’t miss any debt repayments, ever
  • Buy with someone else – two incomes are always less of a risk for a lender and could enable you to get more property for your money too


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