If you’ve been out of college for a while now, then you may be considering buying your first home, however, the pile of racked-up student loan debt is looming over you and is hindering your dream of being able to buy your first home.
So you may think you have to decide if you should pay off your student loans or buy a house, or even if you’ll be able to buy a home when you have student loans?
We’ll be answering these questions today so you can begin the process sooner.
The short answer is, you should try to do both if it’s financially viable for you as the sooner you get on the housing market when interest rates are lower the better, and the sooner the begin paying off your student debt, the quicker you’ll be able to pay it off with lower interest rates.
The longer it takes for you to pay off your student loans, the more interest you’ll pay on them so you’ll end up paying more than if you were to pay them off sooner.
If your student loan interest rate is susceptible to change over time, then you could end up paying more interest on your repayments as time goes on, so the sooner you pay it off the less chance you’ll have of paying crazy interest.
Once you pay off your student loans, they’ll be wiped from your credit report which will help you when applying for credit for either a home or other things like furniture, vehicles, credit cards in the future. However, it is important to note that student loan debt does not affect your credit history too much.
Student loan debt can be very overwhelming and it can harm some people psychologically. Some people may find it easier to go into the home buying process with their student loans completely wiped, making it more simple to focus on the mortgage repayments of your home and also any repairs or decorating you may want to do.
However, if your debt to income ratio is too high then you may not be able to qualify for a mortgage so you’ll need to work on paying off some of your student loans and other loans before considering contacting a lender.
If you pay off high amounts of student loans, credit card bills, and auto loans every month which take up the majority of your income then the lending company will not think you’re capable of making your monthly mortgage repayments.
If you’re still early on in your career and unsure of where you’ll be in five years, then it’s probably best to focus on repaying your loans instead of making the commitment of buying a house.
This means you won’t be tied down anywhere and you won’t be financially restricted to one place if you decide to move elsewhere.
The costs of buying a home aren’t just limited to the initial down payment and mortgage repayments. You’ll also need to pay your utility bills alongside covering the costs of repairs, fixing up your home and taxes, as well as having an emergency fund in case something in your home goes wrong.
So if you’ve paid off your student loans, you’ll have the budget to allocate to these things.
The housing market is very volatile with house prices and interest rates constantly rising and dropping.
If you were to choose to pay off your student loans over saving or buying a home, then you could make it more difficult for you to buy one in the future as house prices may be unattainable for the savings that you have.
If you’re currently renting then you’ll know how expensive it is and often it feels like a waste of money as you don’t own the place.
Mortgage repayments when you’ve bought your own home can frequently be more affordable than your monthly rent payments to a landlord and you’d also have the freedom to decorate and fix it up as you wish.
Student loans don’t affect your credit history as much as some people think, this is because the interest rates are lower for them and you pay them off over a longer period. Therefore, student loan debt on your credit history will not prevent you from being eligible to buy a house.
If you’re worried about balancing mortgage repayments and your student loan repayments, then you may be eligible for an income-based repayment plan that will lower your monthly payments so you don’t have to struggle every month.
If you’ve managed to save up a sizable down payment for a house whether that be through your income or from inheritance and you also have enough money to manage the responsibility of owning a home, then you should be ready to apply for a mortgage.
