Buying A Home With Student Loan Debt
College commencement speeches have been delivered and diplomas handed out. It’s time for the real world which, for many graduating students, means tackling their student loan debt.
Having student loans won’t keep someone from buying a house, although they need to be comfortable with the idea of taking on a large amount of debt while still dealing with their student loans. Options should be carefully weighed in order to decide what makes sense financially. Here are some points to ponder!
It’s All About the Credit Score!
One of the most important factors lenders consider when deciding whether or not to lend you money is your credit score. What people may not realize is that you can have a good credit score even if you have student loan debt. Paying your bills on time and in full will keep your credit score healthy while also building a firm financial foundation. Managing your credit utilization is also significant, with the ideal being that you are not using more than 30% of your available credit. Using different types of credit will also strengthen your credit score. For example, a mix of revolving credit (like credit cards) and installment loans (like car payments or student loans) show that you can handle different types of debt.
What is Your Debt-To-Income Ratio?
Mortgage lenders calculate your debt-to-income ratio to determine your ability to make monthly payments on the new mortgage. Many lenders follow what is called the 28/36 qualifying ratio to determine if you’re eligible for the best rates. This means that you should spend no more than 28 percent of your gross monthly income on total housing expenses, and no more than 36 percent on total debt service (including the new mortgage payment). You can reduce your DTI by paying down some of your debt or by increasing your income. Refinancing or consolidating your student loans to obtain a lower monthly payment is another viable option.
Consider Down Payment Assistance Programs
Many states and cities offer down payment assistance programs that you might be able to take advantage of when buying a home. It’s also possible to work through federal loan programs, even if you have student loans. You may qualify for an FHA loan, which would mean a low down payment. If you choose to buy in a more rural area, you might qualify for a USDA loan, which requires no down payment. Don’t forget about VA loans if you have served in the military!
Regardless of your situation, make sure that you are ready financially before jumping in. Consider what matters most to you, and plan accordingly. Research your options and speak with a knowledgeable mortgage professional to find out what programs you qualify for at a federal, state, and local level. If you have questions about your options for buying a home, call us today!
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