Graduating from college is an occasion to be celebrated. But what follows is the paying off of the vast student loans that you have amassed over the years. Once you have a steady job and a reasonable income the question of owning a home pops into your mind. But is buying a house with student loans a good idea? What are the factors to consider before deciding to go through with buying a house with student loans still unpaid?
Your debt to income ratio
Your debt to income ratio is the first thing that lenders will consider before you are allowed to get a mortgage for your new home. This is done by calculating how much your monthly income is as compared to your monthly loan payments. If your debt to income ratio is less than 28% then you can afford the monthly payments for the student loans and mortgage for the new home. If your DTI ratio is high, the bank might still approve the loan for buying a house with student loans.
But just because the bank approves, does not mean you should opt for it. You will have interest payments along with mortgage to pay each month and costs of furnishing the new home. If you do not receive an income that can sufficiently cover all these expenses and still save you enough for your daily expenses, then buying a house with student loans is not for you.
Buying vs renting
As the saying goes, “Why rent when you can buy?” It makes a lot of sense for those paying high rent for housing each month. You need to do a comparative analysis of buying vs renting and the benefits of buying vs renting. For starters, if your rent payments are high, every month you are paying a huge amount that could have been utilized for mortgage payments for your new home. With each mortgage payment, you are one step closer to ownership of your home. But with each rent payment, you are still exactly where you were before. If your student loan payments are low-interest, it might be a good idea to buy a house to offset the benefits of buying vs renting.
Improve your credit score
If you have a credit card, you have a credit score. And the only way that a bank will lend to you for buying a house with student loans is if you have a good credit score. Paying your monthly student loan installments on time and lowering the amount you need to pay each month can improve your credit score. You can do this by earning more and paying large amounts at a go to reduce the capital amount left to be paid.
The important difference between student loans and mortgage is that not being able to pay off your student loans does not take your education away from you, only affect your credit score. However, not being able to pay the mortgage will lead to the seizure of your home. So carefully consider the pros and cons of student loans and mortgage payments before opting to buy a house.
Remember these factors before answering the question of buying a house with student loans as it is an important financial commitment and needs careful consideration. Consult debt consolidation experts to help you with the decision and take necessary steps to pay off your student loans faster.