Buying a Home When Paying Student Loans
Buying a Home When Paying Student Loans
The average student loan debt is currently hovering at $32,731 and the national total is $1.52 trillion dollars! Even without the figures at your fingertips, everyone knows that student loan debt is the highest it’s ever been and that makes a lot of potential homebuyers, especially millennials, feel like they can’t afford to buy their own house. But is looming student loans really a barrier to home ownership?
If you want to buy a home but are concerned about your student loan debt, here’s what you should know.
Improve Your Credit Score
It can feel frustrating when you’re making regular payments on your student loan but it doesn’t affect your credit score in a positive way. It can be doubly frustrating that when you do finally pay it off, and your credit score goes down.
While there is little you can do about this when working within the current system, you can use the tools you can access to improve your credit score in other ways.
Most importantly, pay your bills on time every time. Work on paying off any debt, especially consumer debt, and keep your credit card balances low. Even though it sounds like the right move, don’t close out credit cards that you’ve paid off. And don’t apply for too much new credit, because this will instigate inquiries, which can lower your credit score.
You should also regularly check your credit score. If there are inaccuracies, don’t assume they’ll take care of themselves. Dispute the information to have it corrected as soon as possible.
Decrease Debt to Income Ratio
To boil it down a little more, it’s important to look at your debt to income ratio. This is the amount of debt you have in relation to your monthly gross income. The amount you pay toward debts, including credit card payments, car loans, and even your student loans, can be added together to determine your number.
To find out your ratio, divide the total monthly debt payments by your monthly income before taxes. Multiply this number by 100 to get a percentage.
When you apply for a home loan, the bank or independent mortgage lender is going to determine their risk for providing a loan. They want to know that your debt to income ratio is relatively low to show that you are a good candidate for a loan.
Right now, the numbers they’re looking for depending on mortgage product, reserves, and compensating factors. In most cases, the DTI needs to be below 50%, and in some cases below 45% specifically. Check with your lender to ensure you are educated on your specific scenario. If your number is higher, you should take steps to lower it. This can be done a number of ways such as by reducing expenses or taking on more work to earn more money.
Even with student debt hanging over your head, the first step to determine if you can buy a home is to get prequalified. An independent mortgage lender like GoPrime Mortgage in California will work with you to determine how you can be financed for buying a home.
By meeting with an independent lender upfront, your prequalification means that you’ll have all the tools in place and the peace of mind to know this can be signed, sealed, and delivered after you put an offer in on your California dream home.
GoPrime Mortgage, Inc. will initiate the pre-qualification process by running and evaluating your credit report. This step is typical in most cases, but GoPrime will take you one step further.
To do so, you will need to provide your complete financial information so we can generate the proper reports. Thoroughness now can save you time later. Then you willknow your budget and shop for a home with confidence.
Check Out Down Payment Options
If you have student loan debt, you may also want to talk to your lender to learn more about your options for down payment. There are several programs to provide down payment assistance, especially for first time homebuyers. There are also federal loan programs, like FHA, that might work for you even if you do have student loan debt. And if you’ve served in the military, you may qualify for a VA loan.
Ultimately, the more you can put down on your home the better off you’ll be for payments in the future.
Different Types of Loans
- 100 Percent Finance Options
- Affordable Homebuyer Programs
- Down Payment Assistance Programs
- Modular Home Financing
- VA Home Loans
- USDA Loans
- Second Home Purchases
- Manufactured (Double-Wide) Financing
- Renovation Loans
- Fixed–Rate Mortgage Loans
- Conventional Loans
- Jumbo Loans
- Investment Property Purchases
- FHA Loans
- Adjustable Rate Mortgages
- One–Time Close Construction
Keep in mind that not all of these loans will be right for you, but we can be creative to find the right option to help you buy a home even when you have student debt.
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