Your Guide To Buying A Home As A Millennial With Student Debt

Are you a millennial under the presumption that because you carry student loan debt you aren’t eligible for home financing?

If you are, you aren’t alone. According to a 2017 survey from the National Association of Realtors 80% of millennials don’t own a home. And a whopping 83 percent of those who don’t own a home say that student loan debt is holding them back.

However, you might have a better chance at homeownership than you think.

Lenders look at your monthly debt commitments when forming a decision to offer to finance. Debt commitments are things like car loans, student loans, credit card balances and mortgages.

As you can see student loans are just one small piece of the puzzle that makes up your eligibility.

What this means for millennials carrying student loan debt who want own a home is that they simply need to get laser-focused on their financial priorities. Steep credit card debt and expensive car loans that fund a lifestyle chasing the newest, shiniest things will work against your home ownership goals.

With student loans, you don’t have to pass up homeownership but you do have to be willing to compromise on the other debts you carry. You also may not be able to aggressively pay down your student loans while also making a mortgage payment each month. This is a matter of knowing your budget, your values, and your financial goal timeline.

If you have other debts start by paying them down. Take care of your most expensive debts now before applying for a mortgage approval to increase your eligibility. Lower monthly payments by consolidating your student loans or opting for income-driven repayment options. Refinancing options can give you a lower interest rate and total a 6-figure difference in savings over time.

Doing these things increases your debt to income, or DTI, ratio. Your DTI is a strong factor in financing eligibility. Typically, lenders look for a 28/36 qualifying ratio. This means that 28% of your income is being spent on housing expenses and 36% of your income towards debt, including your future mortgage payment.

When carrying two long-term debts (a mortgage and student loans) you want to make sure you still leave room in your budget for saving. You also want to leave ample room for home maintenance costs and any potential large repairs.

You may also take a temporary lifestyle setback financially while saving up for your down payment. While there are programs that will help you by lowering the required percent down it is always recommended to put as much down as you can. This will lower your month to month payments significantly and make carrying two debts a lighter burden.