Can You Buy a House With Student Loan Debt? Yes, Here’s How to Tackle It

While the idea of the house with the white picket fence has morphed and modernized, the dream of homeownership is still very real for the average American. And while the call of homeownership remains steadfast, the cost of higher education has increased dramatically, strapping even the most financially prepared students with student loan debt. There’s good news, however — you can still buy a home with student loan debt.

Despite being one of the most significant investments the average American makes, owning your own home is so much more than a roof over your head. There’s the sense of settling down and settling in, becoming part of a community, and actively choosing where you want to spend your downtime. Home really is where the heart is. So, how does this become a reality when you’re up to your eyes in student loan debt?

 

Transition from being a spender to a saver

Yes, it seems obvious, but if you want to achieve your goal of homeownership, you need to start saving. The first part of your journey towards homeownership involves knowing how to save up for your first home. Where is your money going each month?

 If you find yourself dining out several times a week, or meeting friends for cocktails each weekend, take a look at how much you’re spending on dining and entertainment. You don’t necessarily need to cut all of the fun things out of your routine, but definitely scale back and bank what you would typically be spending. Work with friends to plan alternative social events that don’t involve a lot of money but are equally enjoyable, such as dinner parties or game nights. 

 

Set your financial goal

It’s great to be banking extra money each month, but it helps to have a definitive savings goal in mind. Quick! How much money do you need to save for a down payment on a house? If you don’t immediately know the answer, you need to figure out your target amount, based upon the amount of home you can afford. Do you know your price range?

Without figuring out how much you’ll be spending to purchase your first home, you won’t have a guide to how much you need to save in advance. Knowing where you need to be financially also helps you plan both long and short term financial goals, in addition to what you’ll need in the coffers, should you encounter any surprises as a first time homebuyer.

 

Create a plan

Now that you have a general idea of how much money you need to save, plan out the steps you’ll take to get there. Is this a 6-month, one-year, or five-year plan? Analyze your monthly spending and take a hard look at where you can cut out unnecessary expenses. 

 

Decrease your debt-to-income ratio

Two areas typically slow the home buying process for people with student loan debt, and their debt-to-income rate is one of them. When you go to finance your purchase, lenders want to see potential buyers with low to moderate debt-to-income ratios. A general rule of thumb is to keep your debt at a third or less of your income. If your debt is higher than a third, you want to focus on earning more and paying the deficit down.

It’s not always feasible to get a raise in-tandem with your homeownership plan, so consider taking on a second job or side-gig to raise your monthly income. The extra income can not only help you reach your savings goal faster, but it can also help you pay down your debt to a manageable percentage.

 

Build your credit

Many first time home buyers struggle with a lack of credit, simply because they’ve not had the time to adequately build up their score. Guess what? Your student loans actually help you here, as your revolving monthly payments work to build your credit history and raise your score. Continue paying bills on time and consider getting a credit card to help increase your credit.

If you’re struggling to get financing because you have poor credit, part of your plan needs to be devoted to resolving any outstanding debts. Start by paying all of your bills on time and contacting collection agencies to work out payoff arrangements. The sooner you do this, the sooner you will be able to get your credit score high enough to purchase a home. You’ll be surprised at how quickly your credit will rebound once you take care of outstanding debts.

More than anything, be patient and stick to your plan. You can purchase a home with student loan debt, but you have to be on top of your finances to do so.

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