Debt and Your Home: Using Student Debt To Your Advantage
October 1, 2012

When exactly the idea of owning your own home begins to creep seductively into the consciousness is different for everyone. It does happen, though. Somewhere along the line we stop searching high and low for a home and come to embrace the notion that finding a home is an active process; that it is as much an act of creation as it is discovery. The practical merges with the emotional and we desire to stop funneling rent money into somebody else’s mortgage, instead making a place for ourselves.

Sometimes this has everything to do with finding the right partner; marrying and starting a family are the gifts of life with which we most desire to fill our homes. Some of the most beautiful weddings even take place at home. It’s in your own space that you have the freedom to decorate as creatively and personally as you like. You can incorporate your space and what it means to you with the natural world around you, making an incredibly warm and intimate atmosphere for the friends and family you want to share the day with. At the end of the day, you’ll have the memories of this unique celebration of your love surrounding you for years to come.

Unfortunately, one of the repercussions of having an excessive amount of student loans to contend with is that it can be difficult if not impossible to secure approval for mortgages. The good news is that with a well-managed repayment plan, student debt may not only cease to hinder the process of becoming a homeowner, but may actually be an asset.

The massive numbers of students with high levels of educational debt have had a significant negative impact on the housing market. The number of first-time homebuyers, over half of whom are under 35, dropped from 50% to 27% of the overall market during this past year. According to a Federal Reserve Bank of New York study that was released this past May, student loan debt is the only variety of consumer debt that has continued to rise precipitously since 2008. The result is that people often have monthly student loan payments that are as high as a mortgage payment. This makes it difficult both to save money for a down payment on a house and also be able to afford a monthly payment. Additionally, some potential homebuyers whose earnings should be adequate to secure a mortgage are denied approval solely because of the amount of student debt with which they are burdened. The reason is because of some anxiety within the mortgage market over past mistakes.

So how can you use student debt to your advantage in these decidedly risk-averse times? Most people just graduating from college have no credit and can use their student loan payments as a way to establish good credit, which, of course, is crucial to securing a mortgage approval. The trick there is to make sure to avoid defaulting on loan payments. Easier said than done, right? One huge problem amongst borrowers isn’t necessarily the payments themselves but simply knowing when they are in default. Organization is key here. Loan repayment needs to be simplified so that you know what’s due when. Also, many borrowers have a whole mess of small student loans; often, consolidating your student loans will both reduce monthly payments and make the whole situation much easier to understand. This is a complicated area that is best approached with some help from experts, but with a sufficient income level and well-managed debt, it is eminently possible for people with high levels of debt to grasp the dream of owning their own home.