Student Loans Mean You Can't Buy Yet

by Tony Tiller

Myth #9 of 30

A lot of people figure they have to pay off their student loans before they can even think about buying a home. If that were true, most people with a degree would be renting into their 40s. Lenders don't ask whether you have student loans. They ask whether your monthly payments fit with your income.

That's what really decides it. A 2026 study from the Federal Reserve Bank of St. Louis found that mortgage denial rates jump by 15 to 17 percentage points once a buyer's debt-to-income ratio hits 50%. In other words, the size of your monthly payments matters a lot more than the size of your loan balance. And with the right loan and the right paperwork, your student loan payment may count for less than you think.

Can you buy a house if you have student loans?

Yes, you can buy a house with student loans. Lenders don't require you to pay them off first. What they look at is your debt-to-income ratio, or DTI. That's all your monthly debt payments added up, including your new house payment, then divided by your income before taxes.

Here's a quick example. Say you make $5,000 a month before taxes. Your new house payment would be $1,700, your car payment is $350 and your student loan payment is $200. That's $2,250 a month in debt. Divide $2,250 by $5,000 and your DTI is 45%.

Each loan program has its own limit, and many lenders get nervous above about 50%. The St. Louis Fed study backs that up.

How do lenders count your student loan payment?

It depends on the type of loan and what your payment looks like on paper. The tricky part is when your payment is $0, like if you're on an income-driven plan, in deferment or in forbearance. Deferment and forbearance mean you've been allowed to pause your payments for a while.

Here's how the main loan types handle a $0 payment:

FHA loan (backed by the Federal Housing Administration): If your payment shows as $0, the lender counts 0.5% of your balance. On a $40,000 balance, that's $200 a month. If you have a real payment above $0, they use that.
Conventional loan, Fannie Mae (a regular loan not backed by the government): If you're on an income-driven plan and can document a $0 payment, the lender can count it as $0.
Conventional loan, Freddie Mac: A $0 payment is generally counted as 0.5% of your balance.
VA and USDA loans (for veterans, and for eligible rural areas): Each has its own math, so ask your lender.

That's why two lenders can look at the same student loans and come up with very different numbers. If one loan type counts your payment as $0 and another counts it as $200, that can change how much house you qualify for.

What is an income-driven repayment plan?

An income-driven repayment plan, or IDR, sets your federal student loan payment based on how much you make and how big your family is. For a lot of first-time buyers, that means a lower monthly payment, and a lower payment helps your DTI.

Heads up for 2026: federal repayment plans changed a lot this year. The SAVE plan ended, and a new plan called the Repayment Assistance Plan, or RAP, now has a minimum payment of $10 a month. If your payment changed, get your current payment in writing from your loan servicer. Your servicer is the company that sends your student loan bill. Lenders usually want to see that number on your credit report or on a letter from your servicer.

Should you pay off student loans before buying a house?

Not always. It depends on your numbers. Paying off a small loan to drop a payment can sometimes help your DTI more than saving that money. But if paying it off would wipe out the cash you need for your down payment or closing costs, it could hurt more than it helps. We talked about those upfront costs in Myth #1 and Myth #3.

A lender can run it both ways for you and show you which one gets you further.

What student loan problems can stop you from buying?

A federal student loan in default is the big one. Default means you've gone a long time without paying and the loan has been flagged. For FHA and other government-backed loans, a defaulted federal loan usually has to be fixed before you can move forward. Getting back on track, through a program like loan rehabilitation, is the first step.

Late payments on student loans also hurt your credit score, just like any other late payment. Myth #7 covers what score you really need.

What should you bring to a lender if you have student loans?

Bring your most recent student loan statements and anything showing your current monthly payment. If you're on an income-driven plan, bring the letter that shows your approved payment amount. If your loans are paused, bring proof of that and when payments start back up.

Then ask the lender to show you how your payment gets counted for FHA and for a conventional loan, side by side. Here in St. Charles County and across the St. Louis area, that one conversation is often the difference between "maybe in a few years" and "let's start looking."