Millennials make up the largest segment of homebuyers right now. But they’re also carrying an average of $33,000 in student loan debt (in some cases much more).
That means that many people are starting their homebuying journeys burdened with significant debt. Some might not even try to buy a house because they believe that having student loans means they can’t possibly buy a house.
But you can buy a house with student loan debt – especially if you’re not afraid to ask for help.
What's in this Article?
Can buy a house even if you have student loan debt?
Yes! A lot of first-time homebuyers are surprised to learn that you don’t have to pay off your student loans before you buy a house.
Lenders calculate your eligibility for a mortgage using several factors, including your debt-to-income ratio (DTI). Your DTI represents your total monthly debts vs your gross monthly income (meaning income before taxes).
Recent changes to lending guidelines allow lenders to calculate your DTI based on your actual monthly student loan payment. In the past, they had to use a percentage of your student loan balance.
If your loan balance were $100,000, they might count 0.5% to 1% of that balance as part of your monthly payment, which works out to $500-$1,000. Coupled with any other monthly debts you had, that amount might have prevented you from getting approved for a loan.
Now they can use a percentage of your actual monthly payment, including what you pay on an income-based repayment (IBR) plan. Some mortgage loan types allow you to use the IBR payment even if your monthly minimum is $0.
Note: The information above regarding changes to student loan calculations was added by Home.com and should not be attributed to the author.
Even with those changes, however, homebuyers often struggle to save up a down payment and closing costs for a home while they’re repaying their student loans.
Fortunately, there are a number of assistance options out there, including programs created specifically for homebuyers who have student debt.
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Be that person
There are several states that will give you money toward your student loans if you buy a house there (more on these in the next section). If you don’t qualify for those programs, you may be eligible for other types of financial assistance.
But the biggest hurdle to accessing that assistance is asking for it.
It’s important that Millennial homebuyers recognize that they should not feel inferior or “stupid” because they need help. Many people struggle with student loan debt, and there’s no shame in it.
I’ve had people tell me, “I don’t want to be that person,” when I mention student loan assistance programs for homebuyers. They’re ashamed of their debt and they don’t want to need help paying it off.
But these homebuyer assistance programs exist for a reason! States want people to buy houses because it’s good for their economies. They designate money for this exact purpose, so you should not feel bad about using it.
This market is competitive, and homeownership is crucial to wealth creation.
So when someone tells me, “I don’t want to be that person,” my answer is, “Yes, you do.” Be that person.
Which states will pay off your student loan debt when you buy a house?
Several states offer student loan payoff assistance for homebuyers. The criteria vary for each program, and some are reserved for homebuyers in certain professions or specific areas of the state.
Others have requirements about how much debt you have. In Maryland, for instance, the government will give you up to $30,000 to pay off your student loan debt.
But that amount must be sufficient to pay the debts in full. If you still owe $28,500, then that $30,000 would pay off your loans. But if you have $100,000 in student debt, you would not be eligible, since there would be a remaining balance after the $30,000 was applied.
Here’s a list of states with assistance programs for homebuyers with student loan debt:
Again, though, each program has its own guidelines. Your best bet is to talk to your lender about your student debt and whether there are any assistance programs in your state.
But do your own research as well. Some states have multiple programs, or programs exclusive to a particular city or area. Find out what’s available near you.
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Note: The information above regarding states that offer homebuyer student loan assistance was added by Home.com and should not be attributed to the author.
Other types of assistance for homebuyers who have student loans
If you don’t live in an area that offers student loan payoff help, or you don’t qualify for those programs, there are other options:
- Down payment assistance: State and local programs that help cover one of the biggest expenses when buying a home
- Closing cost assistance: Help for covering closing costs on your home loan
- Assistance by profession: Some areas offer loan programs, grants, and other types of aid to nurses, teachers, first responders, and other community-oriented professions
- Assistance for military homebuyers: Some programs and non-profits are designed to help veterans and active-duty servicemembers purchase homes
- Low and no down payment loans: There are a number of loan programs that let you put little to no money down, plus use gift funds and down payment assistance toward your upfront costs
@itsthatrealestatechick #maryland #marylandcheck #marylandtiktok #over30 #genz #millennials #realestate #realestatesource #HotwireHotelGoals ♬ bills – –
Note: The information above regarding types of homebuyer assistance was added by Home.com and should not be attributed to the author.
Be an advocate for yourself
Once you’re preapproved for a mortgage and we start looking at homes together, I’m your advocate. I will go to bat for you time and again until you get the house you want.
But to get preapproved, you’ll have to do some self-advocacy.
Talk with different lenders and find out whether they offer low and no down payment loan options, closing cost credits, or other special programs. Ask them whether they know about student loan payoff options or other types of down payment assistance.
You might be surprised by what’s available. Last year, a buyer I worked with in Queen Anne’s County, Maryland, received $50,000 in down payment assistance from a program for first responders. That is a significant amount of help when you’re buying a property.
The bottom line is that there are programs out there that were put in place so that you can get your home. But you have to ask questions, and you have to self-advocate to ensure that you’re taking advantage of all the opportunities out there.