Buying a home has long been part of the American dream. But it’s a dream that feels out of reach for many young people burdened with student loan debt. In fact, large student loan balances have left many millennials with no choice but to live at home after graduation.
While buying a house may seem impossible with big student loan bills, there are people who’ve managed to do it. Two of them shared their stories with us — along with one borrower who paid off his debt first but wishes he’d purchased sooner.
Choosing an up-and-coming area and focusing on saving
Angalena Malavenda is an online PR specialist at Web Talent Marketing. She purchased her home at 23, despite having more than $45,000 in student loan debt at the time.
“I bought my home in Lancaster, Pennsylvania, in an up-and-coming metropolitan area,” Malavenda said. “I was so sick of paying rent and having nothing to show for it.”
Because she chose an affordable and growing city, Malavenda purchased her home for just $95,000. That price isn’t an option for buyers in more expensive cities, where median home prices can top $1 million. Choosing an affordable locale made it possible for her to buy sooner. Not only were her monthly payments lower, but she needed less money for a down payment and closing costs.
Still, Malavenda had to be careful about budgeting. “I lived very frugally to put back about $5,000 to cover closing costs and anything I would need when I moved. I saved $5,000 in a year,” she said.
Malavenda prioritized saving for her home over paying extra on student loans because she felt she was wasting money on rent. She also knew she’d be able to buy quickly and tackle loan repayment later.
“I paid almost as low as the minimum payment on all of my loans,” she said. “I then put the rest in my savings account.” Focusing all of her efforts on saving for a down payment allowed her to sock away around $400 a month toward her home purchase. She put away more when she earned extra money from side hustles.
She also kept her student loan debt in mind when deciding how much to spend. “Owing student loans caused me to have to look at homes under what I was preapproved for because I knew there would be months I wanted to pay extra on a loan,” she said.
Now, she’s building equity in a home likely to go up in value as Lancaster grows, and she can pay extra on her loans. She can one day use the home as a rental property if she moves for her work or chooses to live in a bigger home after reducing her debt.
Budgeting, finding the right agent, and getting help
J.R. Duren, a personal finance analyst at HighYa, bought a home in Jacksonville, Florida, with his wife when they were expecting their second child. At the time, his student loan balance was $120,000. His wife owed around $9,700. Duren was able to afford his home by taking advantage of the help available to first-time homebuyers.
“We were fortunate enough to meet a real estate agent who told us about a state bond program that paid for all of our closing costs,” Duren said.
“Student loans can be really discouraging and make us feel like we can’t buy a home, but I think what’s missing from this conversation is the concept of state bond programs,” he said. “They’re designed for middle-class families looking for a reasonably priced home, which I think includes a lot of millennials and Gen X grads who have student loan debt.”
Duren and his wife were able to obtain $15,000 in down payment assistance, as well as help with closing costs and discounted rates on private mortgage insurance, which is required if you put down less than 20%. Duren didn’t have to pay back the bonds as long as he stayed in the home for at least five years.
You can find programs in your own state through the Department of Housing and Urban Development, by searching online, or by talking with realtors or mortgage brokers who specialize in helping first-time buyers.
Duren and his wife also worked with a lender offering a mortgage backed by Freddie Mac, a government-sponsored enterprise. Because of that, the lender calculated the couple’s debt-to-income (DTI) ratio based on the monthly payments Duren made on his income-based repayment plan. This was important because the couple would’ve otherwise had too much debt to qualify.
Duren advised budgeting carefully, finding a real estate agent in tune with your needs, and being patient until you find a home you love and can actually afford. “If everything feels forced and it doesn’t sit well with you, take a break from your search,” he said.
They also had to break up with their first agent because it didn’t feel right. “About six weeks later, we started our search again with a new agent, and within 10 days we put an offer on the home we bought.”
Prioritizing student loans
While buying a home with student loan debt is difficult, it’s important to consider whether you’ll regret waiting to buy. Jordan Rothman of Student Debt Diaries made the choice to pay off almost $200,000 in student loan debt before buying his $420,000 condo in West New York, New Jersey. But he now regrets having waited.
“Student loans were a huge burden for me, and I made paying them off my top priority,” he said. “I absolutely bought my home later than I would have liked due to my student debt. Because of student debt, I was forced to pay nearly $100,000 in rent during the five and a half years it took me to pay off my student loans and save for a down payment.”
While Rothman was able to pay off his loans in 46 months, he strongly believes waiting to buy until he was debt-free wasn’t the right approach. He recommended paying off high-interest student loans, such as private loans, first. Then, pay down your loan balances to improve your DTI ratio and qualify for a mortgage. Once you’re at a comfortable ratio, you can save for a down payment.
“The biggest piece of advice I have is to buy a home as soon as it is practical, even if you are burdened by student loans,” he said.
Your situation may be different, so this guide to saving for a down payment while tackling debt repayment could help you prioritize your goals. The good news is, if you decide you’re ready to buy, there’s plenty of great advice to inspire you as you work toward your dream of owning a home.
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Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.97%1||Undergrad & Graduate|
|2.47% – 6.99%3||Undergrad & Graduate|
|2.68% – 8.77%4||Undergrad & Graduate|
|3.24% – 6.66%2||Undergrad & Graduate|
|2.61% – 7.35%5||Undergrad & Graduate|
|3.01% – 9.75%6||Undergrad & Graduate|