With the student debt amounts more than tripled from the 90s, there have been less millennials buying homes for many reasons. A big factor in the hold up for millennials is the amount of student debt they carry. With an average of $30,000 in college debt, plus the debt of auto loans and credit cards, buying a home may seem impossible but there are ways to overcome this barrier and purchase a home.

How Does Student Loan Debt Affect Your Chance of a Mortgage?
Good question. The biggest factor this plays is increasing your debt-to-income ratio. The lower your DTI ratio, the better you look to a lender. Since your student loan payments are factored in to your DTI ratio, the lower your student debt, the better. If you have student debt on top of consumer debt, work to pay off your consumer debt (credit cards, car loans, etc.) first. If you’ve managed to only have student debt then your first step should be to get that lowered.

Additionally, if you’ve missed payments on your student loans then that will negatively impact your credit score. If you’ve made payments on time then that may improve your credit score. The amount you pay per month on your student debt can also be factored in to your debt-to-income ratio. If you’re concerned that the amount you pay on your loans could negatively affect your chances of being approved for the mortgage you need, look into a repayment option that offers a lower monthly payment.

What Options Do You Have if You Cannot Pay off a Large Amount of Debt Right Away?
Your loan officer will look at all your options with you to find out which type of loan would work best for your situation. Sometimes a conventional loan isn’t the best fit for you and nobody knows better than your loan officer.
If you make a larger down payment then that could help your chances of approval as well. If it’s possible to have a larger down payment and to pay down your debt, do both. However, if you’re forced between choosing one or the other then it’s recommended to pay off more debt and look for another way to get the down payment. Researching down payment assistance programs would be a great step for someone who cannot save for a down payment and also pay off their debt at a quicker rate.

There is also the potential option of refinancing your student loans. This comes with pros and cons and you will want to choose wisely. If you have federal loans, they can only be refinanced with a private lender which would leave you unable to take advantage of programs like student debt forgiveness for certain fields. If your student loans are through a private lender already then finding a lower interest rate may be worth the time.
If your debt-to-income ratio cannot be lowered and you cannot lower the price range for your potential home another option is to apply for the mortgage with another person who could help your chances of approval. Having another person on the mortgage gives another income and credit score to look at. This option may be best for married couples or couples who plan on living in the home together, however, you could also ask a family member or trusted friend who could help your chances.

The Last Piece of Advice
Again, trust your loan officer. If you won’t be approved with your finances as they are, your loan officer will let you know so you can focus on paying down your debts and get approved with the best rates in the future. If your only debt comes from student loans then let your loan officer see what could work for you.