So, can you buy your dream house if you have student loan debt?
The common wisdom is bleak: student loans are preventing borrowers everywhere from living The American Dream.
It doesn’t have to be that way, however.
Here are 8 ways to maximize your chance of buying your dream home — even if you have student loan debt.
Student Loan Debt Statistics
If you have student loan debt, you’re not alone. There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt, according to personal finance site Make Lemonade.
The same student loan debt statistics report also found that:
- Nearly 2.2 million student loan borrowers have a student loan balance of at least $100,000
- There is $31 billion of student loan debt that is 90 or more days overdue.
- There is nearly $850 billion of student loan debt outstanding for borrowers age 40 or younger
With student loan debt statistics like these, it’s no wonder some think it’s impossible to own a home when you are burdened with student loan debt.
Here are 8 action steps you can take right now:
1. Focus on your credit score
FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 600 is considered to have poor credit.
To qualify for a mortgage and get a low mortgage rate, your credit score matters.
Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower. If you find an error, you should report it to the credit bureau immediately so that it can be corrected.
2. Manage your debt-to-income ratio
Many lenders evaluate your debt-to-income ratio when making credit decisions, which could impact the interest rate you receive.
A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. Lenders focus on this ratio to determine whether you have enough excess cash to cover your living expenses plus your debt obligations.
Since a debt-to-income ratio has two components (debt and income), the best way to lower your debt-to-income ratio is to:
- repay existing debt;
- earn more income; or
- do both