How to Buy A House with Student Loan Debt

Maximize your chances of qualifying

Image shows two women standing in front of a home; one is wearing a cap and gown, and the other is holding a binder in plain clothes. Text reads: "Tips for securing a mortgage even if you have student loans: Set financial goals, avoid credit card debt, save all 'found' money, make sure you can really handle the mortgage payments, avoid taking out any new loans or applying for any new credit cards"

The Balance / Miguel Co

There's no doubt about it: Having student loan debt can pose problems for you if you want to purchase a home that requires a mortgage.

Millions of college graduates are struggling under such a burden of student loans and credit card debt that the dream of homeownership may seem totally out of reach. But it's not impossible. The tips in this article can help you buy a house, even with student loan debt.

How to Get a Mortgage When You Have Student Loans

Here are 10 strategies you can use to help you qualify for a mortgage, even if you do have student loan debt:

  1. If you have around $10,000 or more in student loans, you may be able to consolidate at a lower rate to lower your payments and use the savings to put away for a down payment on a house.
  2. Set financial goals for yourself, which will help you focus on the big picture and skip unnecessary spending.
  3. Avoid credit card debt. Have one or two major credit cards and pay the balances off every month. If you must carry credit card balances, transfer them to cards with lower rates whenever possible.
  4. Establish a record of paying your bills on time so you don't damage your credit score, which is key in getting the best interest rates on mortgages, car loans, and other loans.
  5. Check your credit report annually for any inaccuracies and resolve them if there are any. If you're planning to buy a home, start reviewing your credit score at least six months before you start house hunting, and take steps to improve your score.
  6. Avoid taking out any new loans or applying for any new credit cards in the months before you start looking for a house.
  7. Pay off as much debt as you can before starting to house hunt, which will help you qualify for the mortgage. If you need assistance, consider a reputable debt relief company that can help you identify and execute debt paydown strategies that won't hurt your credit.
  8. Prepare a realistic budget and make sure you can really handle the mortgage payments on top of your other debt.
  9. Save all "found" money: income tax refunds, bonuses, overtime pay, and cash gifts, to go towards your down payment or closing costs.
  10. Consider a less expensive car and apply the difference in payments to paying down credit card debt or saving for your down payment.

What Lenders Want to See

Student loan payments that exceed 14% of your income are considered a high debt burden, according to the Department of Education. Most students don't even calculate what their monthly payments are likely to be when they're borrowing student loan money, which means they're shocked when they have to begin repayment.

Keeping your payments below 14% of your income may seem doable, but 14% should be the total of all your non-mortgage debt in order for you to comfortably afford your payments.

For someone making $40,000 a year, this would be about $467 or lower per month (for student loan payments, car loan payments, and credit card payments combined).

What to Do If You Are Still in School

Advance planning, careful spending, and earning as much money as possible while in school can help limit the burden of student loan repayments.

Be careful about how you spend your student loan money. Tuition, room and board, and textbooks are smart ways to spend your money. Eating out, buying music and clothes, going on spring break, or otherwise bankrolling your social life, are not the best ways to spend that loan money.

Even if you don't directly use your student loan money for non-educational purposes, spending any of your own money on extras means you have less money for your education (and possibly may need to borrow more). 

You don't have to live like a pauper (that's just not fun for anyone), but try to keep in mind that every dollar you save (as in don't spend) is a dollar less, plus interest, that you don't have to borrow. Remember that student loans will take 10 to 25 years to pay off, which means you'll be (indirectly) paying for those little "extras" for the next decade or two.

Financial aid, summer jobs, part-time jobs during the school year, hybrid loans, and careful budgeting and spending can greatly reduce, and for some people, eliminate, the need for student loans.