Will student loans affect my ability to buy a home?

Dollar houseYes.

Well….that was easy to answer.

In my former life, I originated loans for 10+ years and I’ve met with over 2,000 people during that time – laying out their financials on the table and going through their ability to qualify to purchase a home.

Student loans, even those that are in deferment, are required to be counted into your debt-to-income ratio.  For those going into ministry, often their salary isn’t that large and so your debt-to-income ratio is a major factor in calculating your ability to qualify.

But it goes well beyond qualifying. In reality, a bank will always qualify you for more debt than any reasonable person should accept. The problem with student loan debt is one of risk:

Logic would tell you that in a particular circumstance that allowed you to only pay one debt/expense you would certainly pay your housing expense/mortgage (shelter being a true life need) before your student loan payment (a ‘non-essential’ expense for survival).

But the financial reality is, because your house is backed by an asset (and a bundle of homestead protections) and your student loan is non-bankruptable, its SIGNIFICANTLY easier to recover financially from a home foreclosure than a student loan default.

That’s why I use the word ‘risk’. It doesn’t mean that things will go badly for you, just that significant thought should be put into absorbing that risk.  That’s why many financial experts recommend paying off your student loans prior to purchasing a home.

I can’t always say I’ve followed these recommendations myself, just that risk is almost always impossible to correctly evaluate in the moment – that has certainly always been true in my experience.

The big takeaway is this:  Almost everyone dreams of owning a home, and owning that home as part of being debt free at some point in the future. Student loans will delay the reality of that dream.  It’s a worthy dream, and the work/sacrifices you can make now will pay exponential dividends 10, 20, 30 years from now.

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