The class of 2017 graduated college with an average of $37,172 in student loan debt; that’s up 6% from the previous year.
In the coming months and years these students are going to find jobs, start families, and begin looking for their starter homes, with many of them still carrying a handsome amount of student debt. That fact alone will keep many of them out of the running for purchasing a home and postponing until they feel they have reached a better financial standing, but is this necessary?
Can young professionals still purchase a home with student loan debt, and if so, how?
Despite popular beliefs, having student loan debt will not prevent you from buying a home. In fact, according to a report published by the Brookings Institution, by the age of 35, about 50% of college graduates who carry loans will own homes. However, debt is the key issue when it comes to graduates and homeownership. Whether it’s false beliefs or actual truths, student loans are deterring a large amount of students from taking the next step.
Purchasing your first home is a milestone, an accomplishment that many strive for and it can be in reach for you, even if you are carrying the burden of paying back loans on your education. First things first, create a plan. Taking on a mortgage without first planning how you will handle all of your financial responsibilities is setting yourself up for a possibly stressful financial failure.
Regular mortgage payments and regular student loan payments, how do you handle both?
Let’s start with student loans. There are many government and even private loan institutions that offer payment plans that help with managing a lower monthly payment. Anything from debt consolidation to income-based payments could go a long way to making your payments manageable. With that being said, consulting with an adviser is always best since these programs aren’t always well suited for every financial situation. Choosing the program that’s best for you will set you up for long term success.
Next, mortgage payments. Your debt to income ratio will be a huge determining factor when choosing which type of mortgage you should obtain. Although the amount of your student loan debt could affect mortgage eligibility, all is not lost. Putting away enough money in savings so that you can put down a sizable down payment will help, or you could use that money to pay down loan debt to decrease your debt-to-income ratio.
What about my credit?
Don’t forget to maintain your credit. A great credit history is a key factor in receiving a great mortgage rate even if you have student loans; so remember to pay your bills on time and keep your credit utilization low.