{"id":191593,"date":"2019-04-15T12:13:01","date_gmt":"2019-04-15T16:13:01","guid":{"rendered":"https:\/\/www.livabl.com\/articles\/?p=191593"},"modified":"2019-04-15T15:34:42","modified_gmt":"2019-04-15T19:34:42","slug":"buying-property-with-student-loan-debt","status":"publish","type":"post","link":"https:\/\/www.livabl.com\/articles\/guides\/buying-property-with-student-loan-debt","title":{"rendered":"Can Canadian first-time homebuyers get into the market with student loan debt?"},"content":{"rendered":"

<\/h4>

At 25, I had a brilliant idea to go back to school for public relations. Seven months and a $20,000 student loan later, I graduated with zero interest in practicing PR, an unpaid summer internship (required to graduate), followed by a humbling job search that dragged on for months. In an interview with my future boss, I was asked what my salary expectations were. \u201cMinimum wage?\u201d I said, and I think she laughed.<\/p>\n

My story isn\u2019t special. Every spring, graduates ditch their caps and gowns and step into the real world with an average of $16,727 in debt, according to the Canadian Federation of Students. It will take them around 14 years to pay off (based on the average entry-level salary of $39,523) \u2014 leading many to put off milestones like starting a family and buying property.<\/p>\n

I\u2019m currently saving for a downpayment on a cottage in Ontario \u2014 the inspiration behind our brand new newsletter all about the climb on and up the property ladder (sign up here<\/a>!). To help me leap over the student loan hurdle to get to homeownership, I asked Lisa Okun, a Toronto-based mortgage agent, and Jessica Moorhouse, a Millennial money expert, for advice.<\/p>\n

\"\"<\/a><\/p>\n

Photo:\u00a0Good Free Photos<\/a>\u00a0on\u00a0Unsplash<\/a><\/em><\/p>\n

So, how much debt are Canadian students actually racking up?<\/h2>\n

In an era of rising interest rates and tougher lending rules, Canadians are facing high barriers to owning a home in major Canadian cities. Pair that with lingering student debt and it can feel near impossible.<\/p>\n\n

As of 2016, 490,000 full-time students received a total of $2.7 billion in government-funded loans. Our parents used to be able to pay off their tuition \u2014 which averaged around $1,000 a year \u2014 with summer jobs. Today, the average tuition for a Canadian university \u2014 before the cost of books, travel and supplies \u2014 is $6,500 per year. It gets even more costly as you climb the education ladder \u2014 anywhere from $8,000 to $22,000 per year. According to Statistics Canada, in the past year alone, undergraduate tuition fees have already increased by 3.1 percent.<\/p>\n

\u201cHomeownership was the dream of the Baby Boomers. Now, Millennials are buying in at astronomical prices,\u201d says Kelley Keehn, a personal finance educator and consumer advocate for FP Canada. \u201cWhen their Baby Boomer parents came out of school, they had very little student loan debt and not as many people went to university. Either way, you were almost guaranteed a job. Now, it’s almost expected that you graduate with a degree and you’re still not going to get your dream job. It’s going to take a lot of time.\u201d<\/p>\n

\"\"<\/a><\/p>\n

Photo:\u00a0Helloquence<\/a>\u00a0on\u00a0Unsplash<\/a><\/em><\/p>\n

Will student loan debt hurt my chances of qualifying for a mortgage?<\/h2>\n

The bad news: if you want to get into the property market with student debt it won\u2019t be a walk in the park. The good news: it\u2019s possible.<\/p>\n

\u201cYou can carry debt and still qualify for a mortgage. Some people have this idea that you have to be debt-free before you can get a property. Generally speaking, I haven\u2019t seen a lot of people who weren\u2019t able to qualify for a mortgage because they were still carrying a student loan,\u201d says Okun. \u201cIt\u2019s more so an issue for people who are carrying a lot of credit card debt or have an unsecured line of credit \u2014 which I would tell them to pay off first.\u201d<\/p>\n

Compared to credit cards, student loans are one of the \u201cbetter\u201d debts to have. On top of having low-interest rates, relatively flexible repayment schedules and tax breaks, student loans are qualified less harshly by your mortgage lender.<\/p>\n

How much debt do you have?<\/h2>\n

Lenders need to know that you can keep up with your mortgage. They get this assurance by looking at two key metrics: your debt-to-income ratio and your credit score.<\/p>\n

It\u2019s not whether you have a student loan, but rather, how much you have to pay back and how good you are at doing that.<\/p>\n

\u201cWhen we\u2019re qualifying people for a mortgage, we look at any existing debts and how much income someone makes. You are not allowed to put more than 44 percent of your income towards total debt servicing. The more debt you\u2019re carrying, the less mortgage you can get,\u201d says Okun.<\/p>\n

My relatively small student loan won\u2019t knock me out of the game. Got a $100,000 line of credit to pay back? I\u2019m sorry to say it, but you should probably grind that down first.<\/p>\n

\"\"<\/a><\/p>\n

Photo:\u00a0Element5 Digital<\/a>\u00a0on\u00a0Unsplash<\/a><\/em><\/p>\n

If you want to buy a place, stay on top of your student loan payments.<\/h2>\n

If you miss payments for 150 consecutive days for a provincial loan and 270 days for a national loan, your account will be deemed \u201cdelinquent.\u201d Mean! This unfortunate name severely impacts your credit score \u2014 and your ability to qualify for a mortgage. But you can get back in good standing with six consecutive monthly payments and polishing off any outstanding interest and fees.<\/p>\n

\u201cIf you\u2019re making the payments on time \u2014 your credit score will be good because you\u2019re showing that you\u2019re responsible with credit. Which is really what it\u2019s designed for \u2014 to demonstrate to lenders that you can carry debt responsibly,\u201d says Okun.<\/p>\n

Jessica Moorhouse encourages her clients to stay on top of their credit health. \u201cDo you know your credit score? What does your credit history look like? Most of my clients have never looked until they approach a mortgage agent. Maybe you have too much credit, should be putting more money towards your debts, need a better repayment plan or there\u2019s a missed payment you didn\u2019t know about that\u2019s really hurting your score.\u201d<\/p>\n

\"\"<\/a><\/p>\n

Photo: James Bombales<\/em><\/p>\n

Should I put down less than 20 percent on a downpayment?<\/h2>\n

The reality is that most first-time homebuyers who are carrying debts won\u2019t be able to scrape together enough cash for a downpayment over 20 percent. This means they will default to an insured mortgage and get dinged with hefty mortgage insurance premiums. For a while, I intended to avoid CMHC insurance like the plague (I can barely stomach ATM fees). But, I\u2019ve since come around.<\/p>\n

As I mentioned, it will take the average undergrad 14 years to pay off their loans. That\u2019s a long time horizon to wait before jumping into the property market.<\/p>\n

\u201cSome people are just never going to have 20 percent to put down and they still want to buy a house. And I don\u2019t think they should feel bad about that. At the end of the day, what they want is a home. If putting down less than 20 percent gets them into a place and it\u2019s still affordable to them and they\u2019re prepared for the mortgage payment, closing costs, property tax \u2014 they should just go for it. Because if you wait and wait, you may never get there,\u201d says Okun.<\/p>\n

\"\"<\/a><\/p>\n

Photo: saray_plans\/Instagram<\/a><\/em><\/p>\n

Not sure if you can balance the debt with mortgage payments? Start tracking your spending.<\/h2>\n

When qualifying clients for a mortgage, Okun will share two figures: the maximum they can qualify for based on their debt-to-income ratio and the maximum they would actually be comfortable spending without ending up house poor<\/a>. The best way to arrive at this figure is to track your spending.<\/p>\n

\u201cI recommend people speak to a financial planner to understand what they can really afford to still feel comfortable living their lives \u2014 can you go out, go on vacation occasionally, not worry when you\u2019re at the grocery store? If people don\u2019t have a sense of that, they have a little bit of work to do.\u201d says Okun.<\/p>\n

\u201cI get my clients to create a budget for how they want to allocate their net income. Then they track their spending. It\u2019s the only way to know what the real numbers are. Otherwise, you\u2019re left guessing if you\u2019re within budget or not,\u201d says Moorhouse.<\/p>\n

It doesn\u2019t take that much time. Most of Moorhouse\u2019s clients simply download their credit card and debit transactions into an excel spreadsheet and then categorize them to see exactly where their money is going.<\/p>\n

\u201cYou\u2019ll start to see where the problem areas are and where you can cut back without it really affecting you. Because most of the time people are overspending on stuff that doesn\u2019t actually improve their quality of life,\u201d she says.<\/p>\n

Do you have recurring subscriptions you don\u2019t use or a take-out habit that can be easily curbed? Shaving expenses like these off can easily raise a couple hundred dollars a month. \u201cThat\u2019s significant when you\u2019re saving up to pay down debt or buy a place in the future,\u201d says Moorhouse.<\/p>\n