Pursuing goals in a specific order can often be the more expedient way to go. Say if you want to climb Mt. Kilimanjaro and lose weight, it makes more sense to get in shape first.
If you want to host a dinner party and take a cooking class, you might as well take the cooking class ahead of time. Certain milestones lay the groundwork for the achievements that follow.
But when one of your goals is to pay off a hefty student loan balance, it can feel like putting your life on hold just to get out of debt. Sometimes it can seem like all your friends are buying homes and starting families, while you’re still chipping away at a loan you took out a decade ago. That may lead you to ask yourself, hypothetically: Should you take on a mortgage loan while paying off your student debt?
Deciding whether to buy a home while paying student loans should depend on your unique financial situation. It could be the right idea for some, and the total wrong idea for others. Before we dive in, it’s important for you to know that this is a very complex topic and, for many, a very big decision.
We’re going to try to break it down the best we can, but remember that this info is general in nature and should not be taken as advice. SoFi always recommends that you speak to a professional about your specific situation.
What You Should Know about Buying a Home
Before we get in to managing your student loan debt and a mortgage, let’s talk through some homeownership costs. If you’re a lifelong renter, you may not be aware of all the costs that come with owning a home, most of which your landlord likely pays. Affording homeownership doesn’t just mean saving for a down payment and closing costs—it also includes preventative maintenance, emergency repairs, and all the other little expenses that come with homeownership.
Some people say homeowners should set aside 1% of their mortgage for general maintenance and repairs every year. So if your hypothetical house costs $200,000, that means you might want to save $2,000 a year—maybe even in a separate savings account. A dedicated savings like that certainly can come in handy when you need a new roof or when the water heater breaks.
For a consumer who’s still trying to pay off existing debt, like a student loan, adding a mortgage and home repair costs can push their budget to the limit. Home repairs can further compound the problem, which can lead to taking on even more debt to stay afloat.
And staying in a home for less than five years makes the buyer less likely to recoup the money invested in transactional housing costs. If you end up having to move in the first few years for a new job or to live in a better school district, for example, it may not make sense to buy a home.
Why Prospective Homebuyers May Be Tempted to Buy Sooner
One potential benefit to buying a house even if you still have student loans is so you can start earning equity on the home sooner. And that’s especially true if you live in a city like Seattle, San Francisco, or Denver, where housing prices are rising quickly .
Options to Consider for Those Trying to Manage Student Debt and Buy Property
If your student loan payments are a little too high for you to comfortably afford a mortgage, you may be able to refinance your student loans, which means you could qualify for a lower monthly payment.
Alternately, you may want to get rid of your student loan debt before taking on a mortgage. If that’s the case, you could potentially refinance for a lower interest rate and a shorter loan term. You could then double-down on your refinanced student loans, and then go after a mortgage when you’re debt free.
Making It Work
If you’re set on buying a house while you still have student loans, you may want to check off a few milestones before doing so.
First, having an emergency fund with between three to six months worth of expenses could be a good idea. This emergency fund can help protect you in the event of unexpected job loss, medical expenses, or car repairs. If you have a healthy emergency fund, it’s less likely you will have to choose between paying your mortgage and dealing with a sudden expense.
To help keep track of what savings are meant to cover which expense, you can keep your emergency fund separate from your home repairs savings account. The latter is more for both routine and unexpected house-related expenses, like getting your pipes repaired or your gutters cleaned out.
Remember, you’ll want to prepare for closing costs, home repairs, and homeowners’ insurance.
Other miscellaneous home-related costs can include:
• Utilities: Once you buy a house, you’re usually responsible for all utilities, including gas, water, and electricity.
• Trash and recycling: Trash and recycling pick-up may be extra depending on where you live.
• Landscaping: A home with a yard will require mowing, snow removal, and leaf raking. You can do this work yourself or outsource it.
• Equipment and tools: Even if you can fix problems yourself, you might need to buy special tools to actually do the work.
• Appliances: There’s no guarantee that you’ll get a washer, dryer, dishwasher or refrigerator when you buy a home. You may want to budget extra for these items in case the seller wants to keep them.
• More furniture and decor: If you’re moving from a studio apartment to a two-bedroom house, you’ll probably want more furniture to fill it.
How Refinancing Could Potentially Help Prospective Homebuyers
If you have student loans and want to buy a home, refinancing could potentially lower your monthly payments. This would give you more room in your budget to save for a down payment, or for monthly mortgage payments.
As we discussed above, you can instead consider refinancing for a shorter loan term and lower interest rate such that you can knock out your student loan debt before buying property. Whichever path you decide is right for your unique situation, SoFi is here to help you on your financial journey.
The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.