Attending college is a great feat and can help set you up for success in life. Unfortunately, that accomplishment is often overshadowed by the reality of student loan debt. This is certainly true for many first-time home buyers.
For this cohort, factoring in student debt is an important part of the process. According to the Education Data Alliance, there is $1.64 trillion in federal student loan debt in America; this does not include the amount of private loan debt. The average debt for borrowers is just under $33,000, according to the Federal Reserve. That’s a large amount of debt to consider when qualifying for a mortgage. So how do you buy a home when you have student loan debt? Here are a few tips that can help:
- Focus on building a good credit score. To qualify for a better interest rate, focus on building a great credit FICO® score. With a score of over 740 or more, you can get some of the most competitive interest rates. You can build up your credit score by paying your bills on time, diversifying where you get credit from, maintaining old accounts, and reducing the balance you carry on your cards. *FICO® is a registered mark of Fair Issac Corporation.
- Use a larger downpayment. A larger downpayment can help reduce the interest you pay on your mortgage and shows lenders that you are financially responsible. Consider saving up a higher amount, asking for assistance from family, or using inheritance or other financial gifts to boost your downpayment savings.
- Accelerate your student loan payment plans. If you are uncomfortable with becoming a homeowner while you carry student loan debt, look into an accelerated payment plan. The faster you pay off your student debt, the less interest you will pay. And with your debt paid off or being paid down faster, it’s less likely that it will affect your mortgage qualification.
While these tips can help you prepare to buy a home, there’s one more step you can take to help make the home-buying process easier – meeting with a qualified loan advisor to get prequalified for your mortgage financing. During this meeting, your advisor can review your student loan and other debts with you and help you get a handle on what size of mortgage you may qualify for and what buying power you have. Then, once you have that idea in place, you can shop confidently for a house that allows you to become a homeowner and meet your student loan repayment requirements.
We know that student loan debt is a heavy burden to carry. We have plenty of mortgage finance options to help you buy your first home, even if you have student loan debt. By owning your home, you can stop paying high rent prices, start building home equity, and pay down your student loan debt faster!
