We discussed previously how student loan debt has prevented may young adults from taking part in major activities like buying a home because of how exponentially student loans can affect a borrower’s debt to income ratio. Although qualifying may be difficult, it is not impossible and many are determined to make it work.
Often it boils down to paying down their student debt, lessening their DTI, or saving up for a larger down payment to compensate for the larger DTI. So, which is better to focus on—paying off student loans or saving up for a home? Would it be possible to manage both?
Paying Off Student Loan Debt
Some would argue that paying off your debt first is the ideal method into making buying a home more affordable. Here are the benefits of early student loan payoff:
- While having a student loan doesn’t necessarily impact your score, the amount and whether you make timely payments can. Paying off your student loan debt will completely remove it from your credit report. And less debt showing on your credit report is always a good thing.
- If the student loan you took out came with a variable interest rate, it is highly likely that the interest rate will only continue to rise.
- Plus, taking your time to pay off your student loans will cause you to pay more interest overall, regardless if it was variable or fixed.
- When you are paying your student loan debt down, you are also making payments towards interest—which is tax deductible.
- You’d be paying off your student loan debt. That alone is a major financial benefit and can have a psychological benefit as well.
Choosing To Save Up To Buy A Home
Many loan programs require adown payment and there are a few that do not; regardless of which mortgage loan you go with, saving up for a down payment can help you to get more favorable terms—or compensate for the student loan debt in your credit report.
- Owning is much cheaper than renting in many cities which in turn could allow you to put what you save in rent payments towards your debt.
- Having a place to truly call your own and model however you like can be quite satisfying and emotionally stimulating.
- Putting off buying a home likely serves no benefit—housing costs, interest rates, and rental cost will likely continue to rise.
- Buying a home is the first investment a person often makes. According to the National Association of Realtors, home prices have increase 6.5% every year since 2015. So if you ever choose to sell, you’ll likely come out a bit ahead.
There are debates for all sides and in the end, you will have to choose which you can afford to do and which you would prefer to do. If you need assistance in getting your loans consolidated for a lower payment or to see if you qualify for any loan forgiveness programs, contact The Student Loan Advisory Group for help.