• Team Kath

Buying a home with student loan debit

Updated: Feb 21, 2019

If you’re ready to plant roots in a community or your dream home is on the market, student loans don’t have to hold you back. Here are some insights you can use to responsibly purchase a home, even with existing debt.



Key insights: It’s common for first-time home buyers to have student loan debt when purchasing a house.When buying a home, your debt-to-income ratio is more important than the total amount you owe.A variety of mortgage options exist for home buyers with student loan debt.

I want to buy a house, but I have debt...

If you’re wondering whether or not you can own a home despite debt, the answer is — yes, you can! According to the 2018 Profile of Buyers and Sellers from the National Association of REALTORS®, 40 percent of first-time home buyers have student loan debt. However, if you have student loan debt, you may want to take a closer look at your finances prior to buying.


Home buyers spend a median of three years paying down debt before they’re ready to purchase a property. During this time, potential buyers also save up for these two home-related costs:

  • Down payment

  • Monthly mortgage payments

One of the first costs associated with buying a home is the down payment, which is the cost paid upfront toward the total price of the home. A down payment can range from 3 to 20 percent (or more) of the home sale price.


Because this payment is paid as a lump sum, some buyers find saving for a down payment to be challenging. Of the homebuyers who reported difficulties saving for a down payment, 50 percent said that student loan debt delayed their ability to save.

After you make a down payment and purchase your house, you’ll begin to send in monthly mortgage payments as a homeowner. When determining how much you can afford when buying a home, you’ll want to take a look at your debt-to-income ratio.


Why debt-to-income ratio matters

If your goal is to own a house, keep in mind that four in 10 first-time homebuyers are paying off student loans. So, buying a home with debt is possible — and it can be done responsibly. One of the most important factors to consider is your debt-to-income ratio.

The percentage of your income that you pay to debt each month equals your debt-to-income ratio. This number, rather than the total amount of debt you owe, is what lenders will primarily pay attention to when determining your loan eligibility.


That’s because when lenders assess your debt-to-income ratio, they’re making sure that your potential housing costs and other financial responsibilities won’t cost you too much of your overall income.

Lenders typically take these factors into account when gauging your debt-to-income ratio:

  • Student loan debt

  • Credit card payments

  • Housing costs

  • Car loans

  • Child support

  • Other standard monthly bills

If possible, you’ll want to minimize your debt-to-income ratio by:

Learn how to calculate your debt-to-income ratio

How to get a home mortgage — even with student loan debt

If you have student loan debt contributing to your debt-to-income ratio, you can still apply for a mortgage. Here are three common mortgage options for buyers with student loan debt:

  • FHA loans

  • Mortgage gift funds

  • Down payment assistance programs

1. FHA Loans The Federal Housing Administration (FHA) insures loans that are designed to meet the needs of first-time homebuyers; these are called FHA Loans. This type of loan could be a smart decision for someone with a credit score near 580 or for a buyer with a down payment budget under the 20 percent mark. For this reason, FHA loans are commonly referred to as “helper loans.”

2. Mortgage gift funds Gift funds are another way for buyers to get help when applying for a mortgage. Close family or friends may offer to contribute to the down payment on your home through a mortgage gift fund. If you are fortunate enough to receive this type of assistance, be sure to go through the necessary steps to record the gift.

3. Down payment assistance programs Down payment assistance is another option to help homebuyers with down payments and closing costs on home purchases. These programs have specific qualification requirements depending on:

  • Income

  • Assets

  • Credit

  • Occupancy

  • Location

Each down payment assistance program will have different eligibility prerequisites. Be sure to take a look at assistance programs in Minnesota and Wisconsinif you’re hoping to get extra support toward your home purchase.

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