Is it possible for me to buy a house while I’m still paying off my student loan?
Student loan debt that is managed responsibly should not hold you back from buying a house. There are several factors to consider before making this choice, as well as steps to take before you start house-hunting.
Are you really ready to buy a house?
Your first step should be determining whether this goal is in your best interest.
For starters, do you really know which neighborhood you’d like to live in? It generally does not pay to buy a home you’ll only live in a few years before selling.
Next, think about the financial ramifications of this purchase. Are you comfortable taking on another huge loan right now?
Boost your credit
Once you’ve decided it would be beneficial for you to buy a home, you’ll want to start improving your credit so you’re approved for a mortgage and at a good rate.
Here are some ways you can boost your credit score:
- Pay all bills on time. Mid Minnesota can help.
- Keep credit utilization at less than 30 percent.
- Pay credit card bills in full, before they’re due.
- Don’t close old accounts or open new cards.
How high is your DTI?
While you can obtain a mortgage when carrying student loan debt, manage your debt responsibly. To that end, set up automatic payments on your loan so you never miss a payment.
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. Ideally, your total debt payments should account for less than 36 percent 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 a lower interest rate so you can pay it off sooner and then apply for a mortgage when your DTI improves. You can also try to increase your income to tilt your DTI in your favor.
Determine how much house you can afford
Start saving for a down payment
Next, save up for a down payment. Trim your budget and look for side hustles to boost your income. Then, set up an automatic monthly transfer to your Mid Minnesota Federal Credit Union Savings Account.