Held Back

How student loan debt impacts home buying

Student loan debt, if not handled properly, can feel like a boulder tied to your feet. The constant payments and ongoing stress of digging yourself out of a hole make reaching your financial goals quite a slog. As USA Today reports, one of the goals that is often impacted by student loan debt is buying a home.

According to the 2018 Homebuyer Profile report from the National Association of Realtors (NAR), almost one in four homebuyers had student loans that made it difficult to save for a down payment and ultimately delayed their purchase. Not only that, but among buyers who were rejected for a mortgage, 40 percent had student loan debt. The NAR report also found that dealing with student loan debt made saving for a down payment the most difficult aspect of buying a home. Among those who did end up making a purchase, 67 percent said they had to bypass their ideal home because of their higher education debt.

One of the biggest challenges facing home buyers with student loan debt is the debt-to-income ratio (DTI) that lenders want. Simply put, the less of your income that goes to paying debt, the more you can borrow. Want to find out your DTI? Divide your gross income by your total minimum debt payments. This should include the mortgage you’re hoping to attain. The standard DTI is roughly 43 percent, so if yours is higher, you’re going to have a tough time borrowing a large amount.

The NAR report is an unsubtle reminder of just how difficult debt can be. If you don’t put all your effort into paying debt down, it can impact many areas of your life, for many years. Do your best to have a solid plan for paying off your debts before taking anything on. Some foresight and planning will go a long way toward untethering that bolder and tossing it aside.

Chris O'Shea

Chris O'Shea