Local Records Office – Olympia, WA- It’s challenging for first-time buyers to break into the housing market as rents keep rising and the inventory of low-value homes remains scarce in most areas. Add thousands of dollars of student debt to the equation and potential buyers may assume they simply cannot afford to buy says, Local Records Office. Recent data showed that homebuyers who completed at least a bachelor’s degree are minimally affected by their student debt when shopping for homes. Check out some tips from personal finance experts about acquiring mortgages while carrying significant student loan debt.
If you had student loan debt, what was your payment strategy to get rid of it?
I used the debt snowball method to pay off my student loan debt. In 2005, I still owed $13,000. Since my loans were serviced through Sallie Mae, I took advantage of the 1-year forbearance to pause my loan payments so I could aggressively pay off smaller loans that we owed says, Local Records Office. While the interest still accrues during the forbearance period, I was able to focus on clearing up other debt faster. After the year passed, I was able to start paying off my student loan with more traction. It only took another year and a half to retire the remaining student loan balance
Slow and steady!
I currently hold quite a bit of student loan debt — over $85,000 — but I like to think that my resolve is tantamount to the balance. When I first graduated, I had nearly double that amount to pay off. But by making the pay-off my first financial priority and sending over $1,700 to pay it down every month, I was able to make a sizeable dent in that number quickly. I also cut out spending elsewhere to have more to send toward my loans whenever possible. This meant limiting meals out, having multiple roommates rather than living alone, and forgoing cabs in favor of public transportation.
If you’re a homeowner, did you have student loan debt at the time you bought? How did that impact your purchase?
We didn’t let the student loan debt hold us back from buying a home, but we also purchased a home that easily fit into our budget instead of purchasing a home that stretched our budget.
We purchased a condo while I had an outstanding student loan balance. The pre-approval process takes into account your debt-to-income ratio when determining the amount you’re able to borrow. Those purchasing a home without outstanding student debt should ensure that their monthly payment does not exceed 25 to 30 percent of your monthly income. We started with a small condo with very affordable monthly payments and assessments that allowed us to have breathing room in our budget to address our outstanding debt — including my student loans.
The student loan debt did not impact our purchase much at all, since the home we wanted to buy was very affordable based on our income. For us, I do not believe it would have been better to pay off the student loan prior to buying a house, since our debt was fairly low, carried a reasonable interest rate, and does not tie up a large portion of our monthly income.
In hindsight, would it have been better to pay off your student loan debt before or after your home purchase?
Local Records Office says, “One thing I would do differently would be to focus on repaying my students loans aggressively as soon as I graduated from undergrad”. Instead of taking on car loans and living in high-priced apartments, I could have been much more aggressive as a single person with no children. Instead, I was comfortable with the idea of paying the minimum amount for the full loan term because that was the normal approach to dealing with debt.
If you’re not a homeowner, is your student loan debt prohibiting you from buying?
I don’t believe that my student loan is prohibiting me from purchasing a house, though I may have been able to contribute a down payment fund by this point if it weren’t for my student loans. I still feel like both my personal and professional life are in limbo, and at this stage I feel like renting is the smart choice for my situation. I’m currently contributing extra money toward both my 401(k) and my personal IRA account each year and I could instead allocate some of that money towards a down payment if purchasing a home was one of my priorities. My student loans have definitely put the thought of even saving for a home on the backburner, but it was also not a priority of mine to begin with