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Can you buy a house when you have student loan debt?
Student loans are incredibly common. In fact, according to the Pew Research Center, a quarter of all U.S. adults under age 40 are paying off student loan debt. And among student loan borrowers, 42% owed at least $25,000 in 2023.
That’s a lot of debt — debt that might hold you back from achieving major life goals, such as adopting a pet, having a kid, or even buying a house.
Fortunately, when it comes to becoming a homeowner, student loans don’t have to get in your way. With the right approach and an understanding of how debt impacts your home-buying options, buying a house when you have student loans is possible.
Read more: Physician mortgage loans — how medical professionals with student debt can buy a house
In this article:
Can I buy a house with student loan debt?
You can absolutely buy a house if you still have student loan debt — and many people do. But take note: Your student loans will play a role in the process.
Ultimately, they could make qualifying for a loan more challenging, increase your interest rate, or rule out certain types of mortgage loans in some cases. They will also influence how much you can borrow and, therefore, what price range you should be shopping in.
Dig deeper: How much house can I afford? Use our free home affordability calculator.
How your student loans may impact your purchase
Student loans won’t automatically disqualify you from buying a house, but they will affect other aspects of your home-buying journey.
Student loans will influence the following:
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Your debt-to-income ratio: This ratio tells lenders how much of your monthly income goes toward mandatory debt payments. And the higher your DTI ratio is, the harder it is to qualify for a loan. Generally, conventional mortgage lenders want a DTI ratio of 45% or less (meaning your total monthly debt payments, including your estimated new mortgage payment, account for no more than 45% of your gross monthly income).
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Your interest rate and monthly payment: Mortgage lenders view applicants with high DTIs as risky borrowers, often charging them higher interest rates. This increases your monthly mortgage payment and long-term borrowing costs.
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Your credit score: High levels of student loan debt (or default on those debts) can lead to a lower credit score, and your credit score plays a key role in qualifying for a loan. For example, a conventional loan usually requires a minimum credit score of 620.
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How much you can borrow: Because your student loans can impact your mortgage rate and payment, they also influence your home-buying budget. Let’s say you can only afford a monthly payment of $2,000. At a 6% interest rate and a 30-year term, that gives you a home-buying budget of about $333,000. If you get a higher rate, though — say 7% — your budget drops down to roughly $300,000.
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What loans you can apply for: If your student loans are in default, meaning you haven’t made a payment in 270 days or more, it is difficult to qualify for government-backed mortgage loans. These include FHA, USDA, and VA loans.
A good way to see how your student loans could impact your home purchase is to get preapproved by a mortgage lender. The company will need some info regarding your debts and finances, and then it can determine if you’re a good candidate for a loan — and if so, how much you could likely borrow. This can be a good way to gauge your price range.
Learn more: What percentage of your income should go toward a mortgage?
How to improve your chances when buying a home with student loans
If you have student loan debt and want to buy a house, there are steps you can take to improve your chances. Here are some options:
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Increase your income: Ask for a raise, work more hours, or start freelancing or consulting for extra cash. The more income you can earn, the lower your DTI will be.
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Pay down your debts: Reducing your monthly debt obligations will improve your credit score and lower your DTI, which will help you more easily qualify for a home loan. Consider putting windfalls, like tax refunds or holiday bonuses, toward your debts.
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Improve your credit score: A better credit score will make it easier to qualify for a loan and get you a lower interest rate. This will reduce your monthly payment and overall loan costs as well.
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Bring in a cosigner: A cosigner is someone who agrees to share the responsibility of the loan with you. They lower the risk a lender takes on when loaning you money and can help you more easily qualify. Just make sure you choose someone with a good credit score and low DTI so your application is more competitive.
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Get down payment assistance: While this doesn’t offset the effect of your student loans, it does mean you have to borrow less money, making qualifying a little bit easier.
If your student loans are in default, you’ll want to consolidate or rehabilitate them. With a loan rehabilitation program, you must make at least nine out of 10 consecutive monthly student loan payments. You can then be eligible for government-backed loans again.
Learn more: How down payment assistance programs work
Buying a house with student loans FAQs
Can student loans affect buying a house?
Yes, student loans can impact your ability to buy a house. While having student loan debt won’t outright disqualify you from buying a home, it will influence your mortgage prospects. A high level of debt could make it harder to get a loan, reduce the amount you’re approved to borrow, or land you with a higher mortgage rate and payment.
Can you be denied a mortgage because of student loans?
If you have defaulted on your student loans, you could be denied a mortgage loan. Your student loans could also result in a mortgage denial if they push your debt-to-income ratio past the lender’s or loan program’s maximum threshold.
Can I buy a house with student loans in default?
It’s possible, but you won’t be able to use a government-backed loan, like a VA, USDA, or FHA loan, to do it. You may need to rehabilitate or consolidate the loans before buying a house.
Do mortgage companies look at student loan debt?
Mortgage lenders will consider all your debts, including student loans, auto loans, personal loans, credit cards, and more. To qualify for a mortgage loan, you must fall under a certain debt-to-income ratio.
This article was edited by Laura Grace Tarpley.
