5 Ways To Juggle a Mortgage and Student Loan Payments
Written by
Dawn Allcot
Edited by
Amber Barkley
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In today’s real estate market — where interest rates remain elevated and the median sale price in May 2024 was $439,716, according to Redfin data — homeownership may seem out of reach if you also have student loans. With student loan debt forgiveness off the table for now, you might wonder how you can juggle student loan payments with a mortgage.
Fortunately, there may be ways you can manage both with smart planning, budgeting and some financial discipline.
Consider an FHA Loan To Reduce Your Down Payment
If your student loan payments resumed last year, you may find yourself unable to save as much as you were before the COVID-19 pandemic-related pause. If you find putting 20% down on a home is impossible, or will deplete your emergency savings, look into an FHA loan for first-time homebuyers. You only need 3.5% down and may get by with a credit score as low as 580 to qualify.
Put as Much Money as You Can Toward Credit Cards
If you qualify for an FHA loan and are fortunate enough to have a lump sum of cash, put that money toward credit card debt first. Paying off high-interest credit cards will improve your cash flow and boost your credit score. Your credit utilization ratio, or how much you have available on revolving accounts like credit cards, accounts for 30% of your FICO credit score.
There’s one caveat: Don’t use the cards once you’ve paid them off, but don’t cancel them, either.
Pay Down Your Student Loans
If you have no credit card debt, consider paying as much as you can toward student loans. Mortgage lenders look at your debt-to-income ratio (DTI) when they qualify you. Most lenders want to see a DTI no higher than 43%, and the lower that number, the better.
Consider a Spending Freeze
As you’re preparing to buy a home, or you’ve already purchased one and are struggling to make payments, consider a spending freeze. Start by cutting out all unnecessary spending. You may go so far as to pause grocery shopping, preparing and eating only what you have on hand for a few weeks.
But extreme measures may not be necessary. If you can eliminate purchasing new clothes, dining out or late-night impulse shopping on Amazon, it might be enough to free up some extra cash. Most importantly, create a budget of necessities and stick to it.
Prioritize Saving
You might be tempted to dip into emergency savings to help your dream of homeownership come true. Try to avoid this. As a homeowner, you’ll want an emergency fund in place to cover unexpected home repairs, larger-than-planned utility bills and all the other fun surprises that come with owning a home.
A survey from Hippo.com, reported in November 2023 by GOBankingRates, revealed that 50% of homeowners spent more than $3,000 on home repairs in a single year. Having some cash in the bank can help you avoid putting those expenses on a credit card and further increasing your debt.
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