What You Need To Know When Buying A Home In Metro Phoenix

How To Buy A Home In Metro Phoenix, Even With Student Loan Debt

Photos of stacks of coins with a tiny graduation cap on top. Caption says: Buy a Home When You Have Student Loan Debt.

Are student loan debts holding you back from becoming a homeowner? You’re not alone. Many home buyers worry that they can’t achieve homeownership with student loan debt, but that’s not necessarily the case. Don’t automatically assume it’s a roadblock; even existing homeowners often carry student loan debt.

Working with lenders and assistance programs can make your home purchase a reality and more affordable, despite your student loans. While deciding whether to prioritize paying off your student loan debt before buying a home is a valid consideration, it’s essential not to limit yourself to just one choice. There are other options for you to explore, ensuring you don’t have to wait for years to achieve homeownership, particularly if you have significant student loans. Always consult with your financial advisor to determine the best course of action for your situation.

How Lenders Look at Student Debt

Let’s start with the basics: how is the debt-to-income ratio calculated? When purchasing a home, lenders assess your debt-to-income ratio or DTI. This ratio compares your gross monthly income to the amount of recurring debt you have monthly. For lenders, your DTI carries more weight than your credit score or the size of your down payment.

Why? Lenders need to evaluate your recurring debt, including car loans, credit card payments, and student loans, to determine if you can handle more debt with a monthly mortgage payment.

Most lenders adhere to the 28/36 rule, where the 36% DTI is crucial. The 36% represents the back-end ratio and encompasses your total monthly housing expenses (principal, interest, mortgage insurance, property taxes) along with other debts (student loans, car loans, credit cards, etc.), divided by your gross monthly income. It’s the DTI explained earlier, and it’s advisable not to exceed 36%.

The 28%, on the other hand, forms part of the front-end ratio, considering only your monthly housing expenses (principal, interest, mortgage insurance, property taxes) divided by your gross monthly income. Other recurring debts are not included in this calculation. Again, lenders prefer this ratio to stay below 28%.

Keep in mind that your DTI and adherence to the 28/36 rule have nothing to do with your credit score or debt payment history. Instead, it focuses on your current debt obligations compared to your income. So, while maintaining good payment habits is crucial, your DTI considers your overall debt load.

This aspect can be frustrating for many buyers with student loan debt and solid credit scores. However, understanding these factors empowers you to navigate the home buying process more confidently.

How to Lower Your DTI

If you need to lower your monthly debt and obligations, start with your student loan lender(s). Here are some options to consider. Remember to always consult with your own financial advisor before pursuing these options.

  • Graduated repayment plan – payments start low and rise every two years with the expectation that your income should rise.
  • Loan consolidation – if you have more than one student loan, combine them into one with a lower interest rate.
  • Lengthen your payback term – spread out your loan repayment over more years to lower your monthly obligation. This will increase your long-term interest payments, so carefully weigh the pros and cons when considering this strategy.

Examine all your financial obligations and find other ways to lower you DTI:

  • Consider bumping up your monthly income with a side job. Every little bit can help your cash flow and savings. 
  • Although it’s often not possible in Metro Phoenix, if you are able, use public transit to eliminate a recurring car loan debt.
  • See if you can negotiate a lower minimum monthly repayment requirement on your credit cards, especially one that is on the higher side. Some credit card companies are willing to work with you if you have a good credit score and payment history.

Shop Around for Lender

When you have student loan debt, you need to find a mortgage lender who is willing to work with you and offers programs that may be geared toward borrowers like you. Avoid lenders whose underwriters solely focus on your total student loan debt balance rather than your DTI.

Many lenders collaborate with state and federal assistance programs, showing a favorable track record in assisting homebuyers with student debt. Your college or graduate degree carries significant value, and lenders understand that your career’s future earnings are on track to advance. There are many local programs available to help you buy a home in Metro Phoenix. Check out the U.S Department of Housing and Development Arizona site to see if you qualify!

Keep Increased Loan Limits in Mind

In 2022, the Federal Housing Finance Agency raised the conforming loan limits in Metro Phoenix to a maximum of $726,200, making qualifying for conforming loans backed by Freddie Mac and Fannie Mae more accessible to many buyers. This change eliminates the need for a jumbo loan, which usually requires a larger down payment. This development proves particularly beneficial for buyers with student loan debt and limited cash flow.

Tapping into Federal Loan Programs

There are several government programs that offer loans to borrowers with student loan debt. Each has different requirements, and while some may not be a match for your situation, there could be one that help turn your homeownership dreams into reality.

  • VA Loan Guaranty––Buyers who have served in the military may qualify for a loan with a 41% debt-to-income (DTI) ratio. This threshold can be overridden if some of your income is tax-free.
  • FHA Loan––Typically, the lender allows a 43% Debt-to-Income Ratio (DTI), but in some cases, they may consider a higher DTI on a case-by-case basis.

Are You Ready?

Evaluate if you are truly ready to become a homeowner, even if you have student loans to pay back. Homeownership requires a significant financial commitment and a lifestyle adjustment. If you’re already handling sizable monthly housing costs due to higher rents in the Greater Phoenix area, investing that money in your own home instead of a rental might be a viable option.

Honestly answer these questions about your situation: Do you have a stable job with steady income and the potential for increased earnings? Are you planning to stay in the area for a minimum of five years? Have you been consistently repaying your student loans and managed to save some money? Is your DTI (debt-to-income ratio) reasonable, and are you open to exploring assistance programs that could help?

If you are a first-time homebuyer with student loan debt, you may need to adjust your expectations for your first home. Consider alternative locations or explore townhomes instead of single-family houses.

Focus on obtaining your first home and clear that initial hurdle. After successfully avoiding the pitfalls of being “house poor” and experiencing the joys of homeownership, you’ll be poised to level-up to your next dream home.

Just as you invested time in your education and career, homeownership is a process that requires patience. Your first home can act as a stepping stone towards future financial security, unlocking doors to new opportunities.

Questions and Planning Ahead

Don’t let student loans slow your dreams of homeownership. Many homeowners have successfully paid off their student loans by leveraging the equity from their home purchase. Buying a home could potentially accelerate the process of paying off your student loans! While there are no guarantees, numerous individuals have had this positive experience.

I am here to assist you in determining whether homeownership is the right choice for you, whether it’s now or in the near future. Even if you don’t have student loans, it still requires some planning. Feel free to give me a call, and together, we can create a personalized plan based on your desired timeframe.

Are you eager to kickstart your home search? The initial step is to set up a meeting with me! Schedule your appointment today!

Hi, there!

I'm Kathleen and I love sharing the Arizona lifestyle by helping people who are relocating  to, or from, Arizona with their real estate needs. Let's talk about how I can help you make your real estate goals happen from wherever you are! 

Let's Meet



2015 S Arizona Avenue, #63
Chandler, AZ  85286


my listings

All posts

schedule your free consultation


Hi, there!

I'm Kathleen and I love sharing the Arizona lifestyle by helping people who are relocating to, or from, Arizona with their real estate needs. Let's talk about how I can help you make your real estate goals happen from wherever you are! 

schedule your free consultation



My Listings

All Articles