Home Buying

Should you pay off student debt or get a mortgage first?

Should you pay off student debt or get a mortgage first?


There’s no right or wrong answer when it comes to whether you should pay off your student debt before getting a mortgage. It really depends on your unique financial situation. However, there are some things you can consider that may help you make the best decision.

Let’s go through the things to consider to arrive at the right choice.

Key Takeaways

  • Consult interest rates to see if a mortgage makes sense over paying off student debt
  • Check out your total debt-to-income ratio
  • Make a list of logical pros-cons to consider which is the right move for you financially

Consider your interest rates to see if you should pay off student debt or get a mortgage first

If you find yourself asking whether you should pay off your student debt first or get a mortgage, one of the first things you should consider is your interest rates. Here’s why: if you have high-interest student loans, it may make more financial sense to focus on paying those off first. In other words, the sooner you can get rid of your high-interest debt, the less money you’ll end up paying in interest over time.

Of course, there are other factors to consider as well – like whether you think you’ll be able to keep up with mortgage payments – but your interest rates are definitely something to think about. So start crunching the numbers and see what makes the most sense for you!

Think about your total debt-to-income ratio when assessing if you should pay off student debt before taking on a mortgage

One of the key things lenders look at when considering a loan application is the applicant’s debt-to-income ratio. This is the percentage of an applicant’s monthly income that goes towards making debt payments. For example, if someone has a monthly income of $3,000 and their monthly debt payments are $600, their debt-to-income ratio would be 20%. Most lenders want to see a debt-to-income ratio between 42% and 44% depending on your credit history to qualify for a mortgage and that includes the new mortgage liabilities . The lower your debt-to-income, the higher your chances of approval isof 36% or less. 

So, if you’re thinking about whether to pay off your student loans or get a mortgage, it’s important to consider your total debt-to-income ratio. If your student loan payments would push your ratio above the qualifiable rations, it might be better to wait and pay off your loans first. On the other hand, if your student loan payments would only make up a small portion of your total monthly debt payments, you might be able to afford a mortgage even with your existing student loan debt.

Ultimately, it’s important to weigh all of your options and make the decision that’s best for your financial future.

Assess the situation objectively: Is getting a mortgage before paying off student debt right for you?

Once you’ve considered your interest rates and debt-to-income ratio, it’s time to weigh the situation objectively. To do this, here are a few key points to consider as you walk into the next phase of #adulting:

We suggest pulling out a notebook and writing down the pros-cons after answering the below questions.

Do you have enough for a down payment?

5% down payment is the minimum but will involve mortgage default insurance which will increase your overall mortgage loan and payment. 20% down payment isn’t really needed, but it will help lower your monthly mortgage payments and help you avoid additional costs like mortgage default insurance.

Are you able to afford home maintenance?

There’s much more than just a mortgage payment that goes into owning a home. You will no doubt get some surprise bills thrown your way for home maintenance. The rule of thumb is to always have about 1% of your home’s annual cost saved for repairs. If this will make your house poor, and surprise finances aren’t something you can tolerate (look at your income-debt-ratio), then pay off your student debt first.

Is your life still in progress?

Okay, major thing to consider: Are you trying to stay in one place or are you still trying to figure your life out? If the latter, hold off on buying a home, and focus on paying down student debt while having the flexibility of renting a place in the meantime.

If you found you are ready to get a mortgage before paying down student debt, now is the time to make a plan

After you’ve considered the pros and cons, you can start to make a plan.

If you decide to focus on paying off your student loans first, there are a few things you can do to make it happen:

– Make extra payments each month: This will help you pay off the loan faster and save money on interest.

– Refinance your loans: If you can get a lower interest rate, you’ll save money over time.

– Consolidate your loans: This can help make your monthly payments more manageable.

If you decide to get a mortgage instead, there are a few things you can do to make the process easier:

– Save for a larger down payment: This will help lower your monthly payments and avoid private mortgage insurance.

– Get pre-qualified for a loan: This will give you an idea of how much house you can afford.

– Find a lender with flexible guidelines: Some lenders are willing to work with borrowers who have high debt-to-income ratios.

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