Buying a home may be the largest (and most exciting) purchase of your life. However, saving up for a down payment and budgeting for monthly home payments can be tricky, especially if you have student loans that you’re paying off.
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While it may seem daunting, buying a home while you have student loans is still possible. However, it comes with both pros and cons. On one hand, owning a home can be an excellent investment. On the other hand, it can be difficult to make mortgage payments if you’re already struggling with student loan debt. Here are some things to consider if you’re thinking about buying a house while you still have student loans to pay off.
Reasons to Buy a Home When You Have Student Loans
Owning a home provides stability and a sense of accomplishment – especially if you’ve been renting for a while and worry about lease renewal uncertainty and rising rent.
Through homeownership, you can build equity over time, eventually fully owning your own valuable asset.
A monthly mortgage payment can be cheaper than rent, helping you save money while you build equity.
You can write off the interest on your mortgage and many costs associated with owning a home on your taxes.
A home is usually a good investment – even if you have student loans. Home prices grow at an average annual rate of around 4.4% since 1991, – a steady return for an investment you get to live in.
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Reasons to Pay Off Student Loans Before Buying a Home
In some cases, buying a home while still paying off student loans may not make sense. Some reasons to focus on paying off student loans before buying a home include:
You have a high debt-to-income (“DTI”) ratio, making homeownership stretch your finances too thin. If your DTI is too high, you may not qualify for a mortgage.
Owning a home can be a big responsibility – you’ll need to budget for repairs, landscaping, renovations, and other upkeep costs. This can make the short-term cost of homeownership relatively expensive.
Your monthly mortgage payment could be more than what you currently pay in rent.
If you have trouble making your student loan payments, you may also have trouble making your mortgage payments.
It can take years to build up equity in a home – and if the housing market drops, it could take a while for your home to become worth the price you bought it at.
Home Buying Tips If You Have Student Loans
If buying a home sounds like the right decision for you, there are a few things you can do to make the process easier:
Get pre-approved for a mortgage
If you’re considering buying a home, getting pre-approved for a mortgage should be your first step. The pre-approval tells you how much money you can borrow and helps speed up the process when you find the right home.
Keep in mind that pre-approval is not a guarantee that you will get a mortgage, but it shows that you’re a serious buyer and may help you negotiate a lower price on a home. For buyers who are shopping please check with your preferred lender about pre-approval options.
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Make a budget and stick to it
When considering buying a home, it’s essential to make a budget and stick to it. This means being realistic about how much you can afford each month on housing costs, including your mortgage payment, property taxes, homeowners insurance, and any maintenance or repairs that may be needed. If your budget is too tight, you may want to reconsider buying a home at this time.
Consider student loan refinancing
If you have private student loans, it may make sense to refinance them into a new loan if you can get better terms and/or a lower interest rate. Refinancing may make it easier to keep track of your payments and could result in a lower interest rate, potentially saving you money on interest and monthly payments. However, it should be noted, if you refinance federal student loans with a private lender, you will no longer qualify for existing or future benefits offered by the federal government to federal student loan holders. Please consult www.studentaid.gov for the most current information about any federal student loan benefits.
Whether you should buy a house if you still have student loans depends entirely on your unique situation. Talk to a mortgage professional to review your financial situation and find out if now is the right time to pursue homeownership.
