Having a student loan and trying to buy a house? Do you think that you can manage the debt that you’ve accumulated so far and a mortgage?
Chances are that you’ve already been out of college for some time and you’re already thinking about choosing a place that will be your own. There are several important things to keep in mind if you’d like to buy a house and you’re already in debt. It’s not impossible to buy property while still having a student loan but you’ll need to make several important calculations in advance.
The Impact of Student Loans on Home Ownership
Student loans are becoming bigger and bigger. This social phenomenon is already having a serious impact on property purchases. In the past, people took the decision about buying a home and starting a family in their 20s. Currently, the age for first time property purchases is pushed past a person’s 30th birthday.
A student loan itself doesn’t have much of an impact on whether people get approved for mortgages or not. Statistics suggest that 46,000 first-time home buyers have a student loan and 75 per cent of those individuals have gotten approved for a mortgage.
The amount of student debt that has been accumulated is one of the most important factors that impact the decisions of financial institutions.
Can You Afford the Mortgage?
This is the most important question to ask yourself before making the decision for property purchase. Yes, chances are that you’re going to get approved for a mortgage. Still, waiting until you’re enjoying some financial stability may be the smarter thing to do.
Calculating your current debt to income ratio will help you determine whether you’re capable of handling a mortgage right now.
The debt to income ratio refers to the percentage of the money that you earn each month that goes towards loan repayments. Apart from affecting your ability to repay the loan in a timely manner, the ratio will also determine whether you’re going to get approved for a mortgage.
Keep in mind that the vast majority of financial institutions will not approve you for a mortgage if the debt to income ratio exceeds 43 per cent. If you have a very high ratio, you may consider possibilities for debt management or an additional job. A change in your income level is the only option for getting a mortgage and being capable of juggling several different kinds of debt at the same time.
Can You Afford the Mortgage?
You’re in debt and you desperately you want to buy a house. Here are some of the strategies that will help you accomplish the goal. All of them require fiscal discipline and strategic thinking. This means you may have to make some short-term sacrifices in order to enjoy your long-term goal of property ownership:
- Improve your credit score: this is the first and the most important step. Paying your bills and your student loan on time are some of the best tools for credit score improvement. You may want to avoid using credit cards excessively – keep one available for emergencies. Otherwise, you should refrain from spending money that you don’t have.
- Save enough to make the down payment: this is another essential strategy for buying property while you’re still dealing with student debt. According to general recommendations, you need to have 20 per cent of the house’s value available for the down payment. In this instance, however, you’ll have to decide whether you want to save money for a house or use the money to reduce the amount you’re going to pay back in the form of a loan.
- Get pre-approved by a lender: getting pre-approved by a lender will give you a really good idea about your current financial situation and what you should expect in the years to come.
Take it Slow!
There are many reasons why you should wait until you pay student debt off before buying a house. Millennials are getting married and started families later than their parents. Unless you’re madly in love and you want to take it to the next level, there’s no reason to buy property right now.
Also, keep in mind that you may have steady income right now but you can’t be confident in your financial stability in five or even 10 years. Pay your student loan off and if you’re still enjoying a good income, start thinking about a house mortgage.