Do Student Loans Affect Your Ability to Buy a House
You’ve been thinking about your dream home for a while now, but you still have student loans, and you’re not sure what you can afford. Do student loans affect your ability to buy a house? Let’s go over a few ways that having student loans might impact your buying power. And don’t worry—it’s not all bad.
Student Loans and Your Credit Score
Making regular, on-time monthly payments over a period of time, helps build your creditworthiness. And since student loans tend to have lower interest rates when compared to other credit builders like car loans or credit cards—they can be a smart way to build up your credit.
Plus—if you don’t already have a car payment or personal loan, student loans can improve your credit by adding to your credit mix. With these things in mind, having a student loan might actually help you buy a home.
Better Credit, Better Loan
Why are we talking about your credit score at all, though? And what does that have to do with whether student loans affect buying a house? You need a pretty decent credit score to buy a home. That’s not the case if you plan to buy your home with cash, but most people finance their homes, which means you’ll need to acquire a loan from a mortgage lender.
A better credit score will also help you qualify for a lower interest rate on your loan. The lowest interest rates tend to go to the most credit-worthy buyers.
The Negative Impacts of Student Loans
The one area where a large student loan might affect your ability to buy a home is by impacting your debt-to-income ratio. If you have student loan debt, in addition to car payments or credit card debts, and you don’t make enough income—you might not be able to afford more debt in the eyes of lenders. A high debt might also impact your credit score through your debt-to-credit ratio, which measures how much available credit you have compared to how much money you owe.
In addition to impacting your ability to qualify for a loan, having to pay high monthly payments on student loans can make it challenging to save up for your down payment in the first place. Many loans require as much as 20 percent of a home’s purchase price as a down payment, although you might qualify for a first-time homebuyer grant that can help with this setback.
If you miss student loan payments or make them late, this could negatively impact your credit score. But as long as you are making on-time payments and don’t have too much other debt (or more debt than your income can pay for)—you shouldn’t let having a student loan stop you from shopping for houses.
Besides the pride you might feel from being a homeowner, there are several benefits to owning your own home—including paying towards an asset that you can eventually sell, opposed to making rent payments that you’ll never see again.
The home buying process can seem daunting at first, but don’t worry. You’ll have plenty of help along the way. That includes checklists to help you remember what tasks you’ll have to complete, guides on how much of a down payment you should offer, and general information on how much it costs to buy a home. So consider your housing options and explore what new home construction is all about. Then decide if it’s the right time for you to become a homeowner.
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