Since student loan debt hovers around $1.7 trillion, how much student debt is too high to qualify to buy a home?

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As interest rates remain near historic lows (compare today’s lowest mortgage interest rate), many Americans dream of buying a house. But many are also plagued by student debt. The good news: a student loan doesn’t have to stop you from buying a house. Indeed, lenders are fine with you having some debt, including student loans, but not too much.

How much student debt is too much? if you want to buy a house?

Your debt-to-income (DTI) ratio, which compares how much you owe each month to how much you earn, typically needs to be below a certain threshold to get a mortgage: “Most lenders look for a DTI of 43% or lower… If your DTI is higher, many lenders will think you are a high-risk candidate for a loan and will struggle to pay your mortgage each month,” said Rebecca Safier, graduate student loan adviser and debt expert at Student loan hero. Note that with some government-backed mortgages, such as FHA loans, the DTI is typically around 43%, while other lenders may appear to be a lower percentage.

This example from the Consumer Finance Protection Bureau shows how a calculation of your personal DTI might work: if you pay $1,500 a month for your mortgage and another $100 a month for a car loan and $400 a month for the rest of your debts, your monthly debt payments are $2,000. If your gross monthly income is $6,000, then your DTI is 33%. Not all lenders calculate your DTI in the same way, and not all debts are always included, but this gives you a rough idea.

Should I refinance or pay off my student loans to lower my debt obligation?

If you’ve just calculated your DTI and it’s over 43%, don’t be alarmed: it may be possible to lower it. If you have private student loans, consider paying off or refinancing the balances to lower your monthly debt obligation, says Leslie H. tayne, financial lawyer and founder and director of Tayne Law Group. View the lowest rates for transferring your student loan here.

“If you refinance student loans, you can choose a new repayment term. If you’re trying to lower your monthly payments, you can opt for a longer repayment term of 10 to 20 years, but expect to pay more interest over the life of your loans,” says Safier. That can also have an additional advantage for you, since home ownership costs much more than your monthly mortgage payments. “So if you can pay off or refinance your student loans before you buy a home, you’ll be better equipped to deal with new potential challenges like a leaky roof or a broken stove,” Tayne says. View your options to refinance your student loans here.

“If you have federal student loans, you can try lowering your monthly payments by putting them on an income-driven repayment plan. These plans typically lower your monthly payments, but they also cost you more in interest payments in the long run, so you’ll have to decide. whether you are satisfied with the assessment”, says Safier.

What else do lenders look at when applying for a mortgage?donate?

Of course, lenders look at things other than your DTI, including your credit score, the amount of the loan you want, your down payment, and more, Tayne says. But here are things you can tackle: When it comes to your credit score, since amounts owed make up a large part of your score, paying off your balance can help boost it. “Timely payments are also an important factor. You don’t necessarily have to pay off all your student loans to qualify for a mortgage, but it’s helpful to understand how they affect your creditworthiness and, as a result, your ability to take out a mortgage. get,” says Safier.

Saving for a down payment is also more difficult if you have student debt. But even if you can’t save 20%, that might be a good thing: Look at VA loans, FHA loans, and USDA loans.

Even if you qualify for a mortgage, you need to decide whether you’re comfortable carrying mortgage debt and student debt at the same time. “Maybe buying a house means you’ll have student loans for longer than if you used that money to pay them off faster. There is no one-size-fits-all answer here; you will need to consider your priorities when it comes to paying back debt and owning a home and deciding which one will work out best. In addition, you want to take a good look at your budget and make sure that you can pay your mortgage and student loans at the same time,” says Safier.

If all these calculations are making you stressed, know that you are not alone. “If you already have a student loan and car debt, you may find it difficult to get a home loan while keeping all your debt payments at 36% of your income or less. At the same time, paying student loans and renting makes it difficult to saving for a down payment,” says Holden Lewis, home and mortgage expert at NerdWallet.