Home Owner

Can I Buy a House When I'm Paying Off a Student Loan?

Here's a few things to consider if you are looking to buy a home while paying off student debt.

Are you really ready to buy a house?

Before you take a look at your finances to determine if you can afford this purchase, make sure this goal is in your best interest.

For example, have you considered which city or neighborhood you’d like to live in at this point in your life? College grads are likely just starting out in their career and might be better off with the flexibility that comes with renting. This way, if an employment opportunity requires a move, they’ll be free to accept it. 

Next, think about the financial ramifications of this purchase. When taking out a home loan, reflect on your budget and what it will look like after adding another monthly payment.

Consider these questions carefully before making your decision.

Getting started: Boost your credit

Once you’ve decided that you want to move forward with purchasing a home, you’ll want to start improving your credit. Your credit wellness is the primary factor that home lenders consider when deciding if you’re eligible for a mortgage. It also figures the rate they will offer you.

Here are some ways you can boost your credit score in the months leading up to your mortgage application:

  • Pay all your bills on time. Set up automatic payments to make it effortless.
  • Keep your credit utilization at less than 30 percent.
  • Pay your credit card bills in full, and before they’re due.
  • Don’t close old accounts or open new cards. You want your credit history to be lengthy, and both of these steps can significantly bring down your average.

How high is your debt-to-income?

Lots of young college graduates think it’s impossible to obtain a mortgage when carrying student loan debt. In fact, a 2018 Student Loan Hero survey found that 43% of college-educated Americans with student loans postponed buying a home because of their student debt.

Luckily, there is very little truth to this concern. As mentioned above, a student loan that is handled well should not be a deterrent to getting a mortgage. To make sure you’re managing your student debt responsibly, set up automatic monthly payments on your loan so you never miss a payment or a due date.

In addition, make an effort to pay your student loan back as quickly as possible so it doesn’t reflect badly on your debt-to-income (DTI) ratio. Since taking out a mortgage means accepting more debt, lenders are careful to check that you aren’t carrying too much other debt. Ideally, your total debt payments, including your mortgage, should account for less than 36% of your income.

If your DTI is on the high side, you may not be eligible for a mortgage just yet. Consider refinancing your student loan to a loan with lower interest rates so you can pay it off sooner and then apply for a mortgage when your DTI improves. You can also look for ways to increase your income to tilt your debt ratio in your favor.

If you’re carrying any other debt, such as credit card debt, you’ll want to pay it down as quickly as possible as well.

Determine how much house you can afford

Before you start shopping for a home, find out how much house you can actually afford. The best way to obtain this information is by applying for a preapproval from a home lender. This will tell you exactly how high you can go while showing sellers that you’re serious about buying.

If you won’t need your pre-approval just yet, but you’d like an idea of how much you’ll need to save for a down payment, you can use an online mortgage calculator to get your magic number.

Start saving for a down payment

Once you have your numbers worked out, you’ll need to save up for a down payment. Trim your budget in any way you can and look for side hustles to boost your income and make saving simple. Then, set up an automatic monthly transfer to your Listerhill Savings Account so your money can grow.

At this point, you may want to look into a local down-payment assistance program or a federal loan program, such as an FHA loan, which only requires a down payment of 3.5 percent. If you live in a rural area, you might qualify for a USDA loan, and if you’ve served in the military, you’re likely eligible for a VA loan.

If you're ready to check out buying a home, check out Listerhill's exceptional mortgage options. Our fantastic rates and hassle-free pre-approval process make a Listerhill home loan an excellent choice!

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Frequently Asked Questions

  • What can home equity loans be used for?

    Home equity loans provide you with the opportunity to chase dreams to the fullest. Enjoy a vacation with the whole family, invest in a household remodeling project, or even finance an upcoming vehicle purchase with only a few clicks.  If you can dream it, you can achieve it!

  • What type of requirements exist for home equity loans?

    Home equity loans rely on a loan to value ratio (LTV) to disburse funds, meaning that your credit score and home equity value should be fairly substantial to take advantage of all possible benefits. For assistance in the home equity loan pre-approval process, please speak with your local Listerhill Credit Union branch.

  • How do home equity loans work?

    Also known as a second mortgage, home equity loans work by borrowing against the value of your home’s current equity. You may calculate this yourself by subtracting the amount you owe on your mortgage from the value of your home. Home equity loans provide lump-sum funds at fixed rates, creating affordable monthly payments that are consistent and affordable.

  • What information should I know before securing a land loan?

    When you purchase land, you want to ensure that it can be used for the desired purpose. That involves having certain information about the land in advance, such as the items listed below:

    • Land survey to know the boundaries of the property
    • Property easements so you know who has permission to enter or use your land for sewer pipes or cable wires
    • Title search to see what easements are on your land
    • Zoning laws to determine whether the land is zoned for residential use, commercial use, or another option
    • Flood hazard risk, so you’re aware of any extreme weather risks
    • Appraisal so you know the value of the land compared to similar options 
  • When does it make sense to refinance a mortgage?

    Refinancing your home loan can be a great option to secure a better loan for your current circumstances and future goals. It makes sense to refinance your mortgage if one of the benefits will be helpful for you:

    • Secure a lower interest rate
    • Reduce your mortgage term
    • Switch from an adjustable-rate mortgage to a fixed-rate mortgage or vice versa
    • Borrow against the equity in your home


    If doing any of the above would benefit you, refinancing might be the next best move.