You’ve got student loan debt. You’d like to buy a house. Is it better to pay off the student loans first before you begin saving for a down payment on the house?
This is a common question for U.S. homebuyers. On the one hand, paying off your student loans before you save up for a down payment might let you qualify for a bigger mortgage, because you’ll have less debt. It could also give you the psychological benefit of knowing that you’re officially out from under those college loans.
On the other hand, waiting to begin saving for a home means being stuck as a renter for longer. Plus, housing prices, already high across most of the U.S., will have time to go even higher before you’re ready to buy.
It’s no secret that student debt can be an obstacle in meeting other financial goals. A recent study from the National Association of Realtors found the of first-time homebuyers who struggled to build up a down payment, nearly half said student debt delayed them in saving for a home.
Saving for a down payment already takes longer now than it did before the pandemic. It already takes longer to save a down payment now than before the pandemic. According to an analysis from home-buying startup Tomo, in August a first-time homebuyer would need about seven years and 11 months to save a 20% down payment on a median-priced home. In January 2020, the same purchaser would have needed seven years and one month.
It’s not just a pandemic trend. The amount of time needed to save for a down payment has been inching up over the past 20 years, too. In June 2001, an average first-time homebuyer needed about six years to save a 20% down payment.
Pair that growing challenge with rising average student debt loads and longer loan repayment terms, and you’ve got a perfect storm of competing financial challenges: prioritize paying off student debt or saving for a down payment? To figure out which is right for you, answer these three questions:
What are your other financial priorities?
Can you buy a house before you pay off your student loans? The answer, according to multiple financial planners, is “it depends.” All of them say that an outstanding student loan balance doesn’t have to kill your dreams of homeownership.
But the decision to focus on saving for a house before you pay off your student loans is one you should make in the context of your total financial life. Two to three financial goals are the most anyone can work on at one time, says Kristi Sullivan, a Denver financial planner, …….