Mortgage Myths Debunked: Buying a Home With Student Debt Is Impossible

How to Navigate Homeownership With Student Loans

In our journey of mortgage myths, we have addressed several misconceptions, such as the belief that renting is cheaper than buying, the idea that homeownership is generally unaffordable, misunderstandings about credit scores, and confusion regarding common financing options. Now, let’s look closer at the myth that buying a home while carrying student debt is impossible with these simple tips.

Unpacking the Myth

Many people believe that student debt makes homeownership impossible. However, similar to other homebuying challenges, student debt can be manageable with the right financial planning. Whether you have student debt or not, it is important to know the status of your credit report and score. Understanding these two factors is essential since mortgage lenders consider them during the decision-making process. Once you check them, you can identify any potential issues that might negatively impact your financial condition.

Here are ways you can improve your credit score.

1. Limit Credit Usage You must not use the entire credit balance. Your credit utilization is the ratio of your credit balances to the total line of credit available. You want to use as little credit as possible.

2. Pay Your Bills on Time Pay your bills on time and in full each billing cycle. These one-time payments can impact your credit score and help build a reputable credit history.

3. Keep Old Accounts Open: Closing credit accounts will not benefit your overall credit condition. Current accounts in good standing can help your credit, so keeping them open can be beneficial. The longer you establish a credit history, the better off you will be.

Pro Tip: Knowing your credit score and history condition is essential before starting the homebuying process. You can generally access a free credit report to ensure accuracy regarding items disclosed in the report.

Decrease Debt-To-Income Ratio

Frandsen Bank & Trust mortgage lenders will calculate your debt-to-income ratio to help determine your ability to make monthly mortgage payments. Most lenders use the “qualifying ratio” to determine whether you qualify for some of the best mortgage rates. The qualifying rule is also known as the 28/36 qualifying ratio. This means you should spend no more than 28 percent of your gross monthly income on total housing expenses and 36 percent on all your other costs (including the newly calculated mortgage payment).

Start the FB&T Pre-Qualification Process

As you work to understand your financial situation, Frandsen experts recommend undergoing the pre-qualification process. Frandsen’s pre-qualification process is designed to help prospective buyers get a general idea of how much they can afford based on the information they provide. This means the pre-qualification is not binding on the bank due to the information not being verified. So, you will not benefit from inaccurately reporting your personal information. It's essential to provide accurate information during the pre-qualification process to help you understand how much you can potentially afford.

Buying a Home With Student Debt

Purchasing a home is a significant milestone in life. Understanding how to buy a home while managing student debt is crucial for achieving long-term financial security. A mortgage typically requires a 30-year commitment, and balancing this with student loans can be challenging. It’s important to take the time to review your finances and explore options to increase your homebuying affordability.

Contact your local Frandsen mortgage lender to learn more about this process and to discuss strategies for increasing your affordability during the homebuying journey. Our mortgage experts have the tools and experience to help you move from rent to buy.