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How Student Loans Impact Buying a Chicago Home?

Jul 5, 2024 | Industry News

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Purchasing a home in Chicago can be a daunting task, and adding student loan debt to the mix can make the process even more intimidating. If you happen to be among the 43.5 million Americans who owe over $1.7 trillion in student debt, it’s essential to understand how this debt may affect your ability to buy a home. Let's explore the impact that your student loans might have when you get ready to go house-hunting in Chicago.


High Debt-to-Income Ratio

When you submit an application for a mortgage, the lender will evaluate your debt-to-income ratio (DTI), which compares your monthly income to the amount you owe in debt. If you have a high DTI, it may limit your ability to secure a loan, and your interest rate might be higher. Unfortunately, student loans can significantly impact this calculation, especially if you have a large balance. If you’re unable to qualify for the loan amount you want, you may need to purchase a home with a lower price tag or save more for a down payment.


Monthly Payment Impact

The monthly payment on your student loan can also affect your ability to buy a Chicago home, as it affects your debt-to-income ratio. If your monthly student loan payment is high, it reduces the amount of money you can allocate to a mortgage payment. Moreover, mortgage lenders may lower the amount they are willing to lend you because of your reduced cash flow due to your student loan payments. Therefore, before applying for a mortgage, it’s important to ensure that your monthly student loan payments can fit within your budget.


Credit Score

Your credit score plays an important part in assessing whether or not you will be able to qualify for a home mortgage, as well as the interest rate you will receive. If you have a record of timely student loan payments and no defaults or missed payments, your credit score is likely higher, which may improve your ability to secure a mortgage. However, if you have a history of late payments, your credit score will likely be affected in a negative way, making it more difficult to secure a mortgage for your dream home in Chicago.


Options to Consider

If your student loan balance is high, you may want to consider paying off some of it before applying for a mortgage. And if you need to minimize the impact of a high DTI, you might want to explore ways to increase your income, perhaps with some additional part-time work. Additionally, if you’re eligible for any student loan repayment benefits that are offered by your employer, it would certainly be a wise idea to take advantage of them.


Purchasing a home is an exciting time, but navigating the financial aspects of it can be complicated, especially with student loan debt. It is essential to understand how student loans can affect your ability to purchase a new home in Chicago. Taking time to focus on paying off your loans, increasing your income, and paying bills on time can help you secure a mortgage and put you closer to owning your home. Always remember that with patience and persistence, you can make your dreams of becoming a homeowner a reality – despite your student loan debt!

If you’d like to get pre-approved for a mortgage or talk more about options, please reach out to us. We’re always happy to help.

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