Can You Buy a House With Student Loan Debt?

Can you buy a house with student loan debt? Yes. If you're swimming in student loan debt, you could prioritize paying down some of the debt before making a down payment. But considering that student debt typically comes with low interest, buying a house and getting on the property ladder can be a smart early career move. Read on to understand what you'll need to do to get a mortgage while still paying off student loans.   

Can You Buy a House With Student Loans?

Yes, getting a mortgage and buying a house is possible, even with student loans. Lenders will look at your total debt and debt-to-income ratio as part of the loan approval process, but if you've graduated beyond a student's income, you could qualify. 

The student loans can impact your approval in a few ways, including:

• Debt can lower your credit score, which lenders use to assess risk for mortgage approval.
• Student loan debt impacts your debt-to-income (DTI).

That said, you could still get a mortgage. For example, suppose you have the same debt as the average student loan debt in the U.S., $37,088, with monthly payments of $500. If you've graduated and now make $75,000 a year ($6,250 a month). 

In that case, for a DTI of 43% or less, you could have total monthly debt payments of $2,687.50. After subtracting $500 from student loan debt, assuming you don't have any other debt (such as credit card debt or auto loans), you could be approved for a mortgage with a monthly payment of up to $2,187.50.  

With that, you can qualify for a mortgage of around $250,000 to $300,000, assuming 7% interest and a reasonably good credit score. 

How to Get a Mortgage With Student Loans

Here are the steps to get a mortgage with student loans and enter the housing market this year. 

Explore All Loan Options

Consider conventional and government-backed loans that are easier to qualify for. You can look at USDA, FHA, and VA loans. If you meet qualification requirements, you could buy a home with a 0% to 3.5% down payment and lower interest rates. 

Boost Your Credit Score

Next, to get the best possible loan terms, you'll want to check your credit score and work to boost it. You can track credit progress with most major and online banks. You're also entitled to a free credit report from all three credit bureaus at annualcreditreport.com. If you find any inaccuracies, you'll want to dispute them. Steps to take to boost your credit score include:

• Make on-time payments: On-time payments are the most significant factor in your credit score. Set up automatic payments to avoid missing a payment. If the full amount is too much, set up automatic payments for the minimum and fill in the remainder when you can.
• Micropayments: If you can't afford to pay off all debt at once, make micropayments as often as possible. For example, if you are paid bimonthly, you could make bimonthly payments on your credit cards. 
• Pay off debt: If you're carrying debt, especially credit card debt, plan to pay it off as quickly as possible. You can consider the snowball or avalanche methods or other debt repayment strategies. 

Other options to consider to build credit: 

• Credit-building loans: If you have a low or no credit score, consider a credit-building loan to improve your credit score. 
• Student credit cards: If you're a student or new to credit cards, consider a student or secured credit card to start building a positive credit history. For maximum benefit, keep balances low and pay the card off in full and on time each month. 
• Authorized user: One of the fastest ways to boost your credit score is by becoming an authorized user on a credit card of someone with a good credit score. If you have a friend or family member with a 740-plus credit score and a long credit history, ask if they'd be willing to add you as an authorized user. They don't even have to give you the credit card for you to see the credit score boost. 
• Rent Reporting Companies: If you've made on-time rent or utilities payments, they haven't been reported to the credit bureaus. A rent reporting company can help you add up to two years of on-time payments to your credit history. You can also consider using Experian Boost. 

Reduce Your Debt-to-Income (DTI) Ratio

Your DTI is the relationship between your debt and total income. You can improve this ratio by paying off debt or increasing income. For example, if you're making $6,000 monthly and already have $2,000 in monthly debt payments, your DTI is already 33%. If you increase your salary by $500 a month and decrease your monthly debt by $700, you can lower your DTI to 20%, giving you more room to qualify for a mortgage. 

Increase Your Income

Of course, increasing your income does more than improve your DTI. It also gives you extra cash to pay off debt, save for a larger down payment, or demonstrate greater monthly cash flow to lenders. Consider a side hustle, asking for a raise, or working extra hours. 

Apply With a Co-Borrower

The lender will look at your credit scores, income, and DTI if you have a co-borrower. If your co-borrower has a decent credit score and a DTI similar to yours or lower, you could qualify for a larger loan or increase your chances of approval. 

For example, if you and your co-borrower have a combined income of $11,000 monthly and combined debt payments of $2,000, your DTI is 18%. With good credit scores, you could qualify for a larger loan together. 

Get Preapproved

Mortgage preapproval is the first step in the homebuying process. The lender will review your basic information and request documentation to verify income and assets, such as tax returns, pay stubs, and bank statements. Normally, lenders can give you preapproval and suggest how much you can qualify for within a few days. 

Look for Down Payment Assistance Programs

Many states also have first-time homebuyer programs to help you with the cost of the down payment or closing costs. You can find all the first-time homebuyer programs by state, and could get up to $10,000 in some states!

Consider Buying a Starter Home

A starter home, by definition, is a step onto the property ladder. It might be smaller or in a less desirable area than your dream home, but it gives you the chance to build equity in a home. Rather than looking for a home that checks all the boxes, find one that meets your minimum requirements and hits the most important priorities. For example, if you have children, choose a smaller home in an area with a good school district, even if it means compromising on other features. 

Should You Prioritize Paying Off Student Loans Over Buying a House?

It’s not necessary to prioritize paying off student loans over buying a house. The answer to this question considers your total debt, income, DTI, and other financial goals. If your student loans make your DTI too high to get approved for a mortgage, working to increase income and pay off loans before applying can make sense. 

It's important to revisit the terms of your student loans in case there are additional limitations or stipulations and to double-check interest rates. However, in most cases, student loans are low-interest debt that you can comfortably pay over time while purchasing a house. 

Find the Best Mortgage Offers if You Have Student Loans

You can find some of the best mortgage lenders to help you secure a mortgage even with student loans, here:

Should You Buy a House with Student Loan Debt?

While the answer to this is a personal question that considers your income, debt, where you live, what you do, and other financial goals, buying a house can be a smart financial move. Waiting to pay off student loans can be still waiting well into your 30s for many people. Mortgage lenders won't disqualify you from a mortgage just for the student loan debt, and if you manage the debt responsibly, over time, it could actually help your credit score. 

If you're ready to take the leap, choose a home within your means to maintain your budget and work toward other financial goals comfortably. Ready to start? Here are some of the best lenders for first-time homebuyers. 

Frequently Asked Questions