Do I have to pay off my student loans before buying my first home?
Do I have to pay off my student loans before buying my first home? This is a common question, but unfortunately it is not easy to answer. The truth is that every situation is different.
It’s really about whether or not you feel comfortable paying a loans (and all the other fun expenses of owning a home) while paying off student loans. Check https://bridgepayday.com/ to learn more about loans
Still scratching your head wondering what to do? Here are a few reasons why you should go ahead and buy, and a few reasons why you should probably wait.
Even more for real estate enthusiasts
Here is why you should buy
1. You don’t need as high a down payment as you might think
Gone are the days when you had to spend 20% less to get approved for a loan to buy a home. Now there are more realistic options. For example, a conventional loan allows you to put as little as 3% down payment. An FHA loan requires as little as 3.5% less. With these rates it is a little easier to save a advance paymentwhile paying off the debt.
2. You can always defer payments
A good thing about student loans is that they usually don’t have as high an interest rate as other loans. This means that you can take longer to pay off your debt (without accumulating a lot of interest) than you would with credit card debt. Not to mention that student loans are unsecured. This means you can defer payments, if necessary, without worrying about the government taking your assets away from you.
3. You earn enough money to have it all!
Contrary to popular belief, not all millennials struggle with their finances. If you can afford a monthly mortgage, your student loan bill and everything you could possibly need to survive, why not buy a house? Having student debt shouldn’t stop you from buying, as long as your wallet is in good shape.
Here’s why you should pay off student loans first
1. You don’t have good credit
With conventional loans and FHA loans, you have the option of putting in between 3 and 3.5% less. But here’s the thing, to be approved your credit must be in good shape. While student debt isn’t the most important factor in determining a credit score, it’s still something lenders look at. If your credit isn’t good, lenders are less likely to lend you money.
2. You have a high debt-to-income ratio
How much money do you earn in a month? How much of that money are you using to pay off your debts? If a majority of your monthly income is in debt, your Debt-to-Income Ratio (DTI) is too high and most lenders will only approve those with low DTI (around 43%). Instead of buying a home, it’s a good idea to focus on reducing your DTI.
3. You don’t have emergency funds
If you don’t have emergency funds (or a big savings account), you shouldn’t be buying a home with student debt. Even with a small down payment, you will still need the cash. With closing costs, insurance, furniture, etc., buying a home is expensive. And the same goes for owning a house. What if your dishwasher breaks? You want to be able to manage these expenses as they arise. To do this, you must have some money aside.
Moral of the story: Take a good look at your finances before you pack your bags and buy your first home.