I Have Student Loans…Can I Buy a House?
One topic that has been heavily discussed, especially among millennials, is student loans. Student loans are unfortunately something that most millennials are dealing with and struggling to rid themselves of. You have heard it before, “go to college, get good grades, graduate and you will have a good job;” however, that is no longer the case. Gone are the days where simply going to college and doing well will land you a decently paying job. So, along with owing your life in student loans and difficulty obtaining a job that pays well, you also need to factor in how your student loan debt will affect your chances of buying a home. I know you are saying, “ah, what else?” Rest assured, there is hope.
Having student loans will not automatically disqualify you from buying a home. Student loans are very similar to other types of debt such as credit cards, car loans, etc, in that they can impact the amount a lender is willing to offer a potential borrower. Therefore, as with any other registered and valid debt, it is important to remain current on your student loan payments. Defaulting on your student loan will negatively impact your credit score and create additional obstacles when trying to buy a home. The most important factor lenders consider when deciding whether or not to lend money is your credit score. So, it is very important to remain current on payments and check your credit score regularly and before visiting a lender.
All-in-all, do not be disheartened if you have student loan debt and have dreams of owning your own home. The most that will happen (if you are current on payments) is that your student loans will be factored into your debt-to-income ratio which will determine the rate, terms, and type of loan you receive.
What Is The Debt-To-Income Ratio?
The debt-to-income ratio is commonly used by lenders to determine your ability to make monthly payments on your new mortgage. This ratio is primarily used because evidence suggests that borrowers with a higher debt-to-income ratio are more likely to default on their mortgage. So, like anyone lending money, mortgage lenders seek to make wise investments and protect those investments.
What Is An Acceptable Debt-To-Income Ratio?
Most lenders do not have a maximum debt-to-income ratio per se but do have guidelines. In general, most lenders use a 28-33 /36-38 percent ratio. This means that lenders want to see that you do not spend more than 28 to 33 percent of your gross monthly income on total housing expenses and no more than 36 to 38 percent on total debt, to include the new mortgage payment. Some lenders are more flexible when it comes to this, so, it is smart to shop around.
How Can I Reduce My Debt-To-Income Ratio:
Reduce your debt. Great way to state the obvious right? Seriously, think of ways that you can either reduce your debt and or increase your income. If you have extra time, pick up a side job or apply for a higher paying position. Start paying down your debt as soon as possible. If your lender is solely concerned about your monthly expenses and not necessarily about your debt as a whole, seek to refinance or consolidate your loan to obtain a lower monthly payment. Also, check out the student loan repayment programs offered here to see if you qualify to receive a lower monthly payment.
Keep in mind that some mortgage lenders base their decisions on your total student loan balance rather than the monthly payment, so be sure to ask how your student loans are factored into your debt-to-income ratio. If the lender does use the total student loan balance, be a savvy consumer and continue to shop around. Find what works best for your pocket and look for the best rates.
In conclusion, STUDENT LOAN DEBT WILL NOT KEEP YOU FROM BEING A HOMEOWNER. So, be encouraged 🙂
*The smartest way to buy a home is with the advice and guidance of a realtor, attorney, and real estate investor all in one. If you have any questions or would like more in-depth information on how to improve your credit score, feel free to contact me.