Navigating Homeownership with Student Debt

How to balance mortgage goals while managing student loans

If you’re carrying student loans and dreaming about buying a home, you’re not alone. With the right plan, you can make progress on both, without feeling like you’re choosing one over the other.

1) Know your numbers: income, payments, and ratios

Lenders look closely at two debt-service ratios: Gross Debt Service (GDS) and Total Debt Service (TDS). As a rule of thumb for insured mortgages, aim to keep GDS at or below 39% and TDS at or below 44%. That means your housing costs and all other debts (including student loans) need to fit comfortably within your income.

You’ll also need to qualify at the stress-test rate—the higher of your contract rate + 2% or 5.25% so your budget should leave room for rate changes. A quick pre-approval will show where you stand today and what price range keeps you safe.

2) Tame your student loan payment (without tanking your credit)

If federal student loan payments are tight, explore the Repayment Assistance Plan (RAP). You can apply through the National Student Loans Service Centre; if approved, the government may cover some interest (and eventually part of the principal) while keeping your payments affordable. Bonus: as of April 1, 2023, the federal government permanently eliminated interest on Canada Student Loans, which helps your balances fall faster.

3) Build a smarter down payment (and keep your tax bill low)

Two registered plans can accelerate your savings and work together:

• First Home Savings Account (FHSA): Contribute up to $8,000/year to a lifetime max of $40,000; contributions are tax-deductible and qualifying withdrawals are tax-free when you buy. Think of it as RRSP style deductions with TFSA style withdrawals for your first home.

• Home Buyers’ Plan (HBP): You can now withdraw up to $60,000 from your RRSP for a down payment (repay over time), and you can combine HBP with an FHSA on the same purchase if you’re eligible.

Using these tools can meaningfully increase your down payment, lower your mortgage insurance premium (if applicable), and reduce monthly costs all the while keeping more cash flow free to handle student loans.

4) Optimize your budget before you shop

A few targeted moves can improve both your mortgage approval and day-to-day cash flow:

• Right-size your car and credit: High-payment car loans and revolving balances push up TDS. Paying down (or consolidating) higher-interest debts can do more for approval than throwing every spare dollar at low-interest student loans.

• Choose the right amortization and term: A longer amortization lowers the payment (helpful for cash flow while loans are active), and you can make lump-sum prepayments later.

• Automate savings and payments: Set recurring transfers to FHSA/RRSP and automate student-loan and credit payments to avoid late fees and protect your score.

5) Get pre-approved early and shop strategically

A pre-approval clarifies your target price, closing costs, and monthly payment at the stress-test rate and at your expected contract rate. With student debt in the mix, it also lets us structure your application to highlight stability (steady income, growing savings, on-time repayment) and choose a lender whose guidelines best fit your profile. If your ratios are on the edge, a small price adjustment or a bit more down payment can make the difference.

6) Create a 12-month game plan

Here’s a simple sequence many clients follow:

1. This month: Open an FHSA and automate monthly contributions; gather documents (IDs, pay stubs, T4s, NOAs, balances).

2. Next 1–3 months: Review RAP eligibility to lower payments if needed; pay down any high-interest debt first.

3. Months 3–6: Top up RRSP (if appropriate) to position for a future HBP; we’ll monitor your ratios and update your pre-approval.

4. Months 6–12: Start touring homes that fit your approved budget and comfort zone; keep savings on autopilot until you land “the one.”

You don’t have to be debt-free to buy a home. With a smart mix of repayment assistance, tax-advantaged saving, and an approval strategy that respects your cash flow, you can pay down student loans and build home equity at the same time.

If you’d like help mapping out your numbers or you’re ready for a pre-approval reach out today! We’ll tailor a plan to your income, your loans, and your timeline, so you can move forward with confidence.