Buying a house with $100K of student loans

If you’re one of the more than 42 million Americans with student loan debt, it can feel like your loans are holding you back from major life milestones, such as buying your own home. While the burden of student debt can be significant, that doesn’t mean you can’t achieve your financial goals while paying it off. 1

It’s still possible to get a mortgage while you have student loan debt, giving you the opportunity to become a homeowner. We’ll break down different loan options and how to make sure the home you choose will be affordable while you continue to handle your student loans.

Can you get a mortgage and buy a house with student loans?

Yes, home buyers with student loans can qualify for a mortgage. Simply having student loan debt is not disqualifying, but it will have an impact on your application and ability to qualify for a loan.

When you apply for any type of loan, including a mortgage, your lender will put you through an underwriting process to determine whether you’re likely to default on your loan or will be able to pay it off.

If you meet your lender’s qualifications, can show that you can afford to take on a mortgage payment, and have a good history of paying your debts, generally a lender will approve you for a mortgage. However, your student loans may reduce the amount that you’re able to borrow, which could affect what homes you can afford.

How student loans can affect mortgage eligibility

Lenders consider many different factors when you apply for a loan, including your credit score, income, and expenses.

Your student loan balance can impact your credit score, with more debt typically leading to a lower score. That can make qualifying for a loan harder and increase the interest rate of loans you do qualify for.

One of the most important factors lenders look at is your debt-to-income (DTI) ratio . This is the percentage of your monthly income that you dedicate to debt payments, including for loans such as auto loans, credit cards, and student loans.

For example, if you make $5,000 per month, have a $400 student loan payment, a $450 car loan payment, and a $100 credit card payment, your DTI ratio will be ($400 + $450 + $100) / $5,000 = 19%.

Most loan programs and lenders will place a limit on the maximum DTI you can have after accounting for your mortgage payment. That means that a larger student loan payment will reduce the amount you can borrow with a mortgage because it will limit the size of your mortgage payment.

For example, the maximum DTI ratio for a conventional loan is usually 36% but can rise to 45% or even 50% in some cases. Assume you have the income and debt payments from the above example, and your lender has a maximum DTI of 36%. You could get a loan with a maximum payment of $850 per month. If you did not have a student loan payment, you’d be able to get a mortgage with a payment as high as $1,250.

Your approval amount will give you an idea of the closing costs you’ll pay

How to get a mortgage with student loans

If you have student loans, there are still ways you can get a mortgage. Use these tips to help you qualify.

1. Consider all loan types

There are many different loan programs designed to help people purchase homes. Each has different eligibility requirements, pros, and cons, so search for one that fits your needs.

• Conventional loans. Conventional mortgages are those that meet the requirements for credit scores, maximum DTI ratios, and maximum loan amounts set by Fannie Mae and Freddie Mac. They are widely available but typically require solid credit. Typically, conventional loans require a DTI of no more than 36% but can go higher depending on the unique personal situation of the borrower.
• FHA loans. FHA loans are insured by the Federal Housing Administration. They have lower credit score minimums and are usually aimed at people with fair credit rather than good or excellent credit. These loans allow for back-end DTI ratios, meaning DTI ratios after adding your assumed mortgage payment, as high as 43%. 2
• USDA loans. USDA loans are government-insured loans available to people who want to buy a home in designated rural areas. They have benefits such as not requiring a down payment and having a maximum DTI ratio requirement of 41%. Visto Mortgage does not currently offer USDA loans.
• VA loans. VA loans are only available to veterans and eligible servicemembers and, in some cases, their surviving spouses. They have no down payment requirement and other benefits, including a maximum DTI ratio of 41%.

2. Pay down your debt

Another way to make it easier to qualify for a mortgage is to pay down your existing debts. Though it may not be easy, it can have a big impact.

This strategy may boost your chances in two ways. For one, paying down your debts can help boost your credit scores, making you a more appealing borrower. If you pay off one or more debts in full, it also reduces your DTI ratio, which can increase the amount you’re able to borrow.

3. Increase your income

While it’s easier said than done in many cases, if you can find ways to boost your income, it can make you a more appealing borrower and increase the amount you can borrow.

There are many ways to increase your income, such as working for a promotion at your job, asking to work overtime, taking on some gig work like delivering food, or using some of your skills to start a freelancing business.

If you do go this route, be sure that your income is documented. Lenders won’t consider any money you earn under the table. Also, make sure that you’ll be able to keep earning the income in the long run. You don’t want to qualify for a mortgage based on a higher income level and find yourself struggling to make payments once your side hustle work dries up.

4. Apply with a co-borrower

A co-borrower is another person who agrees to take on responsibility for your mortgage. Unlike a co-signer, who only has to step in if you fail to make your payments, co-borrowers are equally responsible for the debt.

When looking at your application, lenders will examine both your and your co-borrower’s credit scores, income, and other factors. That means that your co-borrower’s income and strong credit can help you get a larger loan or qualify for a lower rate.

Being a co-borrower on a loan is a big responsibility, so this is typically reserved for someone like a family member, spouse, or someone who will jointly own and live in the home with you.

5. Buy a starter home

While they can be difficult to find these days, you may consider buying a smaller starter home or a fixer-upper that you can put some work into.

Finding a less expensive home will let you make a larger down payment relative to its value. That can help you avoid the additional cost of PMI and reduce your mortgage payment, letting you stay on the right side of DTI ratio requirements.

Another benefit of fixer-uppers, especially if you’re handy, is that you can boost your equity by improving them. If you can update and upgrade your home, you can boost its value and get more money out of it when you sell and move into a larger home.

Should you pay off your student loans before buying a house?

If you’re trying to decide whether to pay off your student loans before buying a home, you may want to consider these factors. When you have enough savings to settle your loan debt, you may want to use it toward your student loan debt or use it another way depending on your unique financial situation.

Calculate your DTI

To start, calculate your debt-to-income ratio. Add up all of your monthly debt payments, including student loan payments, and divide that result by your income to find your DTI ratio.

If your DTI ratio is high, meaning 35%, 40%, 50%, or higher, and especially if your student loan payments make up a large part of your monthly debt payments, it may be best to pay off your loans before looking for a mortgage.

Evaluate your savings

Think about your overall financial health outside of your credit and debt. You want to make sure that you’re in a stable place before you think about adding a major responsibility like a mortgage to your plate.

Consider these questions.

• Do you have an emergency fund? If so, is it large enough to handle the kind of unexpected expenses a homeowner may face?
• How much do you have saved for a down payment? Can you cover the minimum down payment for the price of the home you want, plus closing costs, moving expenses, and other miscellaneous costs associated with moving?
• Do you have room in your budget to handle a new loan payment and a stable enough income to feel comfortable taking on more debt?

If you answered no to any of these questions, you may want to wait before applying for a mortgage.

Revisit the terms of your student loans

Take a close look at your student loan documents, paying attention to things like their interest rates, principal balance, and any income-based repayment options available.

If you have any loans with a higher interest rate than others, you may want to prioritize paying them off first to save money. On the other hand, if you have a loan or two with a much lower balance, you may put more cash toward those loans to pay them off quickly and free up space in your budget.

If you have a loan with an income-based repayment plan or that is in deferment or in forbearance, look into how interest accrues on the loan during that time. You may find that your payments aren’t sufficient to pay down the balance. You may want to try to increase your payments in that scenario.

If you’re dead-set on getting a mortgage while carrying student loans, look into how forbearance and income-based repayment plans affect how lenders perceive your DTI ratio. Different loan programs treat loan payments differently based on whether they’re in forbearance or how your payment is being calculated, so changing your loan’s status may make it easier for you to qualify for a loan.

The bottom line: Buying a home with student loans is possible

Even if you have student loans, it may still be possible for you to qualify for a mortgage and buy a home, depending on your unique financial situation and your lender’s requirements. You will need to take the steps necessary to make sure you’re a good candidate for a loan even while carrying student debt. That may mean working to boost your income and credit score while limiting your debt-to-income ratio.

If you’re ready to start on your homebuying journey, you can reach out to Visto Mortgage ® to see what you may qualify for .

1 This article is for informational purposes only, and is not a substitute for professional advice from a medical provider, licensed attorney, financial advisor, or tax professional. Consumers should independently verify any service mentioned will meet their needs.

2 Visto Mortgage is not acting on behalf of FHA or HUD

3 Visto Mortgage is a VA-approved lender, not endorsed or sponsored by the Dept. of Veterans Affairs or any government agency.

TJ Porter has ten years of experience as a personal finance writer covering investing, banking, credit, and more.

TJ’s interest in personal finance began as he looked for ways to stretch his own dollars through deals or reward points. In all of his writing, TJ aims to provide easy to understand and actionable content that can help readers make financial choices that work for them.

When he’s not writing about finance, TJ enjoys games (of the video and board variety), cooking and reading.

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