Does having student loan debt make it harder to buy a house?
Mortgage interest rates remain near historic lows, creating a tempting opportunity to enter the market as a first-time homebuyer. But student loan debt can present a roadblock to buying a home. The average borrower owes $33,654 in student loan debt, according to data compiled by Credible. The average repayment plan comes to $393 per month, which could easily put a pinch in your ability to afford a mortgage. President Joe Biden's plan for student loan forgiveness could offer some relief for potential homebuyers, but it may be months away and may not cover private student loan debt. In the meantime, here's a closer look at how student loan debt could affect your ability to buy a house  and what you can do about it. If you're considering taking out a mortgage and want to see what options are available for your student loan, check out Credible to speak to a loan expert. 3 WAYS TO REDUCE YOUR STUDENT LOAN DEBT  Saving for a down payment could be challenging  A bigger down payment can mean less you have to finance and potentially lower monthly payments on a mortgage, creating more room in your personal finances. About 26% of first-time homebuyers cited saving a down payment as the most difficult part of the home-buying process, according to a 2020 report from the National Association of Realtors (NAR). Student loan debt could hurt your ability to buy a home in one of two ways. First, if you're only able to save a smaller down payment, student loan payments might limit your options when it comes to properties and mortgage loans. Second, you could end up having to delay your home purchase if you're hoping to save a larger down payment. Refinancing student loan debt could help lower your monthly payments while saving money on interest, leaving you with more cash in your budget to put toward a down payment. If you're interested in the benefits of refinancing, you can visit Credible to view student loan refinance rates from multiple lenders in one place. 4 THINGS TO DO WHEN BUYING A HOME  Student debt could increase your debt-to-income ratio  Your debt-to-income ratio (DTI) represents the percentage of your income that goes toward debt repayment each month. This number is important, since most lenders cap the maximum allowed DTI at 43% for qualified mortgages, according to the Consumer Financial Protection Bureau (CFPB). If your monthly payments to your student loans put you over this threshold, then it's possible you could be denied for a home loan. It's also important to note that lenders don't have to adhere strictly to the 43% DTI rule; they could set the maximum allowed debt-to-income ratio lower. Refinancing these student loans could help to reduce monthly payments and improve your DTI. You can use an online student loan refinancing calculator to estimate what your new monthly payments might be. With Credible, you can get prequalified for student loan refinancing rates without affecting your credit score. Think carefully about refinancing federal student loans, however. Under the Biden administration's loan forgiveness plan, only federal student loan debt would be eligible. Refinancing federal loans into private student loans could cause you to miss out on that benefit. 5 WAYS TO PAY IT OFF  Missing payments could hurt your credit score  Aside from your DTI ratio, mortgage lenders also look closely at your credit history when deciding whether to approve you for a home loan. Late or missed payments or a student loan default to your student loans could result in a lower credit score. While there are bad credit mortgage options, they can come with higher interest rates, making homebuying more expensive in the long term. Setting up automatic payments can help avoid the possibility of missed or past due payments damaging your credit. Your lender may offer an interest rate discount for enrolling in autopay, which could help you save money on interest over the loan term. This option may be available for both federal student loans and private student loans. If you're struggling to make payments to federal student debt, you can reach out to your loan servicers to discuss options. Federal loan borrowers currently have their loans in forbearance through Sept. 30, 2021, but you may need to continue that with an additional forbearance or deferment once that window closes. With private student loans, it's up to your lender to decide whether to offer any type of forbearance or deferment in case of financial hardship. If your loan servicers don't allow for loans in forbearance or deferments of any kind with private student loans, then refinancing your loans elsewhere could help make payments more affordable. Bottom line  Student loans can be a hindrance to buying a home but it's still possible to realize your goal of purchasing a dream home. Accelerating your student debt payoff can help and it's one reason loan borrowers consider refinancing their loans. You can visit Credible to view student loan refinance rates from multiple lenders today. Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.