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Pay Off Student Loans or Buy a House?

Updated November 1, 2021 . AmFam Team

Deciding between paying off student loans or buying a house? Read how student loan debt affects your ability to buy a home and decide what’s the best option.

After college, life moves fast. You get your first big job, move out of your parents’ house and start a whole new life on your own. For most people, this also means paying off student loan debt from your college tuition. Having this debt may make big milestones like buying a house seem far off, but there are ways to make the leap from renter to homeowner even if you have student loans. So can you get a mortgage while also paying off student debt? Or should you wait to pay it off before you buy a house?

Every situation is different, so it’s important to do the right research and choose the best option for you. Luckily, we’ve done some of the breakdown for you to help you decide whether to pay off your student loan entirely or buy a house.

Can Student Loans Affect Buying a House?

Typically, student loan debt doesn’t prevent you from getting a mortgage. The biggest thing to note is that student loan debt does influence your debt-to-income ratio, which is a factor lenders consider before giving you a loan. It can also affect the interest rate you pay on your mortgage.

Buying a house with defaulted student loans

If you’ve defaulted on your student loans, it’ll be more difficult — but not impossible — for you to get a mortgage. Because defaulting negatively affects your credit score, lenders will be less likely to want to give you a loan or will charge a much higher interest rate on a loan.

Getting a home loan with student loan deferment

If you’ve deferred your student loans, this usually won’t affect your chances of getting a mortgage. Just be sure to consider how the future estimated payments will factor your debt-to-income ratio. Some types of mortgages may reject applicants with deferred loans, so do your research on the different types of mortgages before shopping.

Should You Pay Off Student Loans Before Buying a House?

Buying a house is expensive, there’s no doubt about that. It can seem smart to hold off on house shopping while you still have student loan debt, and it can be even more difficult to save for a house if you’ve got a high debt-to-income ratio. But if you have enough income to handle the payments for both, you may want to consider investing in your first home.

Signs You Should Pay Off Student Loans

When considering whether to pay student loans or save for a house, there are a few factors that can help you decide if paying off your student loans should be a priority.

Your debt-to-income ratio is too high

If the amount of money you bring in monthly or yearly is almost the same as the amount of money you pay out in debts — like student and car loans or credit cards — it may be best to pay down your debt before buying a house.

You’ve defaulted on your loans

Defaulting on your loans has a severe negative impact on your credit score, which tells lenders that you’re a bigger risk to take on. Work on improving your credit score before shopping for a mortgage.

You’re struggling to make payments

If you feel like you’re living paycheck to paycheck or struggling to make payments on your loan every month, it’s best to hold off on saving for a house. Need help keeping track of your student loan payments? Try our student loan payment tracker to get organized.

You haven’t saved for a down payment or emergency fund

Before you start picking out which houses you want to tour, you should take a look at your savings. If you don’t have enough for a 5 to 10 percent down payment or enough as an emergency fund for home expenses — like a broken dishwasher or damaged roof — take more time to put money away for your first home.

Signs You Should Buy a House

Even if you have student loans, you still may be able to afford a house. Here are a few signs you’re ready to buy a home.

You can afford to make monthly payments on your loan

If your student loan payments are manageable, it’s a good sign you can take on the new expense of a home loan.

You make your payments on time

The ability to pay your loan on time every month is a strong sign you may be ready to start applying for a mortgage.

You’ve saved for a down payment

Having enough money in your savings to cover a decent down payment on a home is a good indicator that you’re ready to be a homeowner. And if you have the income to handle closing costs and fees, you’re even better equipped to buy a home.

You have extra income to cover home expenses

Disposable income that can go towards home expenses like new appliances, repairs and renovations is an important factor of homeownership. If your budget allows for these things, you should consider buying a home.

Ready to Buy a Home?

If you've decided that you're ready to buy a home, check out our our first-time home buyers’ guide to learn all about the home buying process and how to financially prepare to buy a house. This guide will help you with everything you need to get started.

As you continue through the home buying process, reach out to an insurance agent (Opens in a new tab) to build a homeowners policy that fits your budget and your new home.

This article is for informational purposes only and based on information that is widely available. This information does not, and is not intended to, constitute legal or financial advice. You should contact a professional for advice specific to your situation.

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