As of early 2020, 45 million borrowers collectively owe $1.6 trillion in student loan debt in the United States, weighing in at the second highest consumer debt category behind mortgage debt. This very well could be a reason that many millennials don’t own homes, and are waiting until their mid-thirties to buy one.
It is important to note that student loans generally do not reveal your entire financial history, although they are considered in your Loan to Debt Ratio by mortgage lenders. If you have good credit, a stable job and some savings, you still might be a fantastic candidate for a loan. And, paying off your student loans regularly can even show the lender that you are a responsible borrower.
Another important consideration is defaults and their effect on your credit score. If you miss a student loan payment and you have good credit standing before the default, it may not take long to repair your credit score. However, many graduates have little to no credit when they default, which has the potential to hurt your credit and delay your ability to get a home loan. Start building credit sooner rather than later to avoid this.
The best way to become eligible to buy a home is to make sure you are properly managing your debts, whether it be your student loan repayment plan, your credit card debt, car payments, etc. Keep up to date on your credit score, don’t miss your payments, because with a little savings, you might be a great candidate for a home loan.
Speaking to a loan officer about your interest in a buying a home is a great way to get started, as they can help you plan and prepare for applications and may have helpful advice along the way.
Loan to Debt Ratio: the ratio of total debt to total assets, expressed as a decimal or percentage. Calculated by adding up all your monthly debt payments, divided by your gross monthly income.**
Default: failure to fulfill an obligation, especially to repay a loan or appear in a court of law.***