How to save for a down payment when you’re drowning in student debt

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It’s graduation season for post-secondary students across Canada. That means it’s time to leave the campus bubble and dive into the job market. Facing the real world isn’t always easy—especially when you’ve got student debt to tackle on top of your bills and other financial responsibilities. And the thing they don’t always tell you in school? That debt can stick around long after you’ve locked in your first paid gig.

For most post-secondary graduates, it takes between nine and 15 years to fully pay off those student loans. And a lot can happen during that time. These are often the years where people go through expensive milestones like buying a first car, getting married—and for many Atlantic Canadians, buying a first home.

Joining the wonderful world of homeownership can feel like a right of passage. But what happens when you’re still saddled with student debt? We chatted with Colleen Gallant, Financial Services Officer at Provincial Credit Union to find out exactly that. She shared her top four tips for saving for a home—even when you’re dealing with student loans.

1. Start early.

“Your financial goals can feel impossible to reach when you have debt—but if you know you want to buy a house in the future, talk to a financial expert. It may take some time, but they can help you map out a plan to meet your long and your short-term goals. It’s important to have these conversations in the early stages—because the sooner you start saving, the better.”

2. Be honest about what you can afford.

“As a rule of thumb, you should never spend more than 32 per cent of your gross monthly income on mortgage payments. Sit down, do the math, and make a budget. Our mortgage calculator can help you figure out the payment that fits your budget. Just remember—even if you can afford your monthly mortgage payments, there are other expenses to factor in. When you’re planning to buy a house, in addition to the down payment, you need to consider the up-front costs, like legal fees and inspector fees and ongoing expenses like utilities and repairs.

If you’ve taken everything into account and it seems feasible, then you can look at saving for the down payment. Map out where your money goes each month and look for opportunities to scale back—sometimes cutting back on the little things—like trips to the coffee shop—can make a big difference when it comes to saving.”

3. Protect your credit score.

“Student loan debt can have an impact on your credit score. Creditors will look at that, along with how you’re treating your other debt. Even phone bills can have an effect your credit report as they’re now being tracked by the credit bureaus. It’s so important to pay all of your bills on time—they’re the gateway to everything you want to buy later in life. You need to have good credit if you want to buy a home.”

4. Watch your debt-to-income ratio

“A high ratio mortgage—a mortgage in which the borrower places a down payment of less than 20 per cent of the purchase price—can make saving for a down payment much more feasible for many first-time homebuyers. In fact, you can be approved for a mortgage for as little as 5 per cent down. And if you have a stable income and good credit, there are loan options to help you make that down payment. Just make sure you pay attention to your debt-to-income ratio. The more you lower that ratio, the more you show your mortgage lender that you can afford your monthly payments. The last thing you want to do is put yourself in a home you can’t afford.”

The moral of the story is, home ownership is not out of reach—even if you’re still chipping away at your student debt. The key is to get informed and to talk to a financial expert. Our First Time Homebuyers’ Guide is a great place to start.