You’re ready to buy your first house since you graduated. You’ve saved up a down payment, and you’ve got a great job that’s going to help you afford the monthly mortgage payments. But there’s one big obstacle standing in your way—you have $100K in student loans.
Now, there’s no need to worry. Buying a house with $100K in student loans is not impossible!
In this guide, we’ll discuss everything you need to know to help you make well-informed decisions for such an important investment.
Can I Really Buy a House with 100K in Student Loans?
Again, you might be wondering, “Can I buy a house with 100K in student loans?” The answer is, “yes, you can!” Here’s how it works…
When you’re buying a house, the lender will consider your debt-to-income (DTI) ratio. This is the total amount of all debts that you have to pay every month divided by your gross monthly income.
For example, let’s say your monthly student loan payment is $400 and your monthly income is $4,000. Your DTI would be 0.10 or 10%.
Most lenders want to see a DTI of 36% or less. So, in our example, you would definitely qualify! Of course, a lower DTI is always better. If your DTI is below 28%, you’ll likely get the best mortgage rates available. But don’t worry if it’s above that—you can still qualify for a great rate.
Other Factors to Consider
Apart from your DTI, there are also other factors that affect your capability to buy a home with an outstanding student loan. According to the article on this page, https://homesbyardor.com/buying-a-house-with-100k-student-loans/, these include your outstanding credit card debts, long-term debts, and other associated monthly bills.
Your monthly credit card payments and other debts are added to your student loan payment to calculate your DTI. So, taking the previous example, if you also have $100 in credit card debt, your total amount of debt would become $500. This will make your DTI would be .125 or 12.5%.
To get the best mortgage rates possible, it’s important to keep your DTI ratio as low as possible. You can do this by paying off some of your outstanding debts, like those pesky credit cards, before you apply for a mortgage.
Another factor that lenders will consider is your job stability. They also want to make sure that you have a steady income and that you’re not likely to lose your job in the near future. If you have a stable job and a good income, you’ll also be more likely to qualify for the best mortgage rates available.
Using Student Loans to Buy a House: Is It a Good Idea?
If you are wondering if using student loans to buy a house is a good idea, the answer is it depends. It really varies on each person’s situation.
For example, if you’re fresh out of college and buying your first home, using student loans to help with the down payment might not be the best idea because you’re just starting out and don’t have a lot of equity in your home.
If you’re further along in your career and have been making payments on your student loans for several years, using them to help with the down payment can be a good idea because you’ll have more equity in your home.
But in most situations, using a student loan alone to finance a home purchase is not a good idea. Student loans usually have a higher interest rate than a mortgage, so you would end up paying more in interest over the life of the loan.
It’s always best to try to come up with a down payment from savings or other sources aside from using such a loan. This means that you should already have a job and be making payments on your student loans for several years before considering buying a house.
Taking Out a Mortgage with a Student Loan Debt
When you’re buying a house with student loan debt, you’ll need to get a mortgage. The good news is that there are many different types of mortgages available, so you can definitely find one that fits your needs.
Like how to get a $100K loan for a house, here are your primary options.
Fixed-Rate Mortgage
This is the most popular type of mortgage that offers predictable monthly payments. With it, your interest rate will stay the same for the entire loan term, no matter what happens in the market.
Adjustable-Rate Mortgage (ARM)
This type of mortgage starts with a lower interest rate than a fixed-rate mortgage, but it can change over time. The interest rate on an ARM is tied to an economic index, so when the index goes up, so does your interest rate.
An ARM can be a good option if you plan on selling your home before the interest rate goes up. But if you plan on staying in your home for a long time, you might be better off with a fixed-rate mortgage so you don’t have to worry about your interest rate going up in the future.
Government-Backed Mortgage
If you’re buying a home with student loans, you might want to consider a government-backed mortgage. As the name suggests, this type of mortgage is backed by the federal government and usually comes with lower interest rates and more flexible terms than other types of mortgages.
The most popular government-backed mortgage is the FHA loan. With it, you can put a little down payment on your home purchase.
The most important thing to remember when taking out a mortgage is to shop around and compare rates from different lenders. This way, you can be sure to get the best deal possible.
Another thing to keep in mind is that your monthly mortgage payment shouldn’t be more than 28% of your gross monthly income (the 28/36 rule). So, if your monthly income is $4,000, your mortgage payment should be no more than $1,120. Again, this is something that’s important to keep in mind when shopping around for a mortgage.
Buying Your First Home with a Student Loan: How to Do It Right?
Buying a house with $100K in student loans can be more difficult than purchasing one without any existing loan. Here are a few tips to make the process easier on your part.
1. Work with a Real Estate Agent
An agent will be your best friend during the home-buying process. They will help you find listings within your budget, offer to show you homes, and negotiate on your behalf with the seller. It’s important that you find an agent you trust and who has your best interests in mind.
If you’re not sure how to find a good real estate agent, ask your friends or family members if they have any recommendations. You can also look up agents online and read reviews from past clients.
When meeting with potential agents, be sure to ask them about their experience working with buyers who have student loans. This way, you can be sure that they understand your unique situation and know how to best help you.
Once you’ve found an agent you want to work with, be sure to sign a buyer’s agent agreement. This will protect you in case anything goes wrong during the process.
2. Find a Co-Signer
If you’re buying a house with $100K in student loans, you might need to find a co-signer for your mortgage. A co-signer is someone who agrees to sign the housing loan with you and is legally responsible for making the payments if you can’t.
The good news is that there are many people who can serve as a co-signer on your loan, including family members, friends, or even your employer. Just keep in mind that whoever you choose as your co-signer should have good credit and a steady income. This way, they will be more likely to get approved.
3. Look for Homes That Are in Your Price Range
When buying a house with student loans, you’ll need to be extra mindful of your budget. You don’t want to end up buying a home that’s too expensive and then struggling to make your monthly payments.
Your real estate agent can help you find homes that are within your budget. They will also be able to give you advice on how much you should offer for a particular home.
It’s important to remember though that just because a home is within your budget doesn’t mean you should spend the maximum amount you’re approved for. You’ll also need to factor in things, like closing costs, repairs, and furnishings, when deciding how much you can afford to spend on a home.
You can also use a mortgage calculator to get an estimate of your monthly payments.
By following these tips, you’ll surely be able to find a home that you can afford, even with $100K in student loans. Just remember to take your time and do your research so you can be sure you’re making the best decision for your future.
FAQs
Q: Can I buy a house as a student?
A: Even if you are still a student, you may be able to buy a house if you already have a steady income. Again, your debt-to-income (DTI) ratio will be an important factor in whether or not you qualify for a mortgage.
Q: With a $100K salary, how much house can I afford?
A: This really depends on your other debts and expenses. If you have no other debts, you may be able to afford a more expensive home. But if you have a significant student loan debt, you may need to adjust your budget accordingly.
Q: How much should I put down on a house?
A: Generally, you’ll want to put down 20% of the purchase price of the home. So, if you’re buying a $200,000 home, you should have at least $40,000 for a down payment.
Final Thoughts
A home purchase is a big financial decision. And, buying a house with $100K in student loans can make things complicated. But, it is possible to do if you take the time to understand the process and shop around for the best mortgage rates. Be sure to use this guide as a resource when buying your first home with student loan debt.
Did we miss anything? Let us know in the comments section below. And, be sure to check out our other blog posts for more tips on buying a home.
Thanks for reading!