How to Purchase a Home When You Have Student Loan Debt
How to Purchase a Home When You Have Student Loan Debt
By Tanya Torres
Dreaming about owning a home is something that most people do, but those dreams are often shattered for a lot of people, especially those with college debt. Although having college degrees is necessary for practically all jobs nowadays, these degrees are coming with a hefty price tag in the form of student loans. As a result, people with school debt are steering away from purchasing their own home because they believe that they will never be approved because of it. Although having student debt can make it a lot harder for you to become a homeowner, it does not mean it will never happen for you and we have the scoop to help you learn more about your options.
Credit Score Matters
Although people like to preach that having any kind of credit is bad for you and using money is always the best route when purchasing anything, it does not mean that works for everyone. Some people may have a lot of money to invest and purchase in things, but not everyone has disposable money like that which is why having a decent credit score will prove to be beneficial in the long run. Keeping your score 650 and above is a great start in helping you purchase a home because it will increase your chances in qualifying for a mortgage at a good rate.
Be sure to keep an eye on your credit score and if you see any discrepancies in your credit history then contact your credit bureau to sort it out. A lender does not want to deal with a risky borrower and the less problems in your credit history, the better chances you will have in purchasing a home no matter how much debt you have from school.
Managing your debt-to-income ratio is really important especially if you’re interested in purchasing a home. A lender will be taking a look at everything to ensure that you can afford the home and that means they will be seeing if you can repay what you owe. To find out what your debt-to-income ratio is, all you have to do is add up all your monthly debt payments and then divide them by your gross monthly income. Although it is known that borrowers with a higher debt-to-income ratio are not going to be seen as unreliable and will not be qualified for a mortgage loan, it does not mean that they can’t have any debt. The highest ratio a borrower can have that will still allow them to qualify for a loan is 43 percent. In order to help you with your debt-to-income, you will have to either repay existing debt or earn more income.
Putting your upcoming payments on a calendar and setting up reminders is really important in helping improve your credit score and reducing your debt. If you forget to pay something, not only does it hit your credit score but it also increases your chances of having to pay an additional fee on top of your payment. This is also important because lenders want to know that their borrowers are responsible with their finances and having a bunch of hits on your credit score history will not help you with purchasing a home.
Another way to ensure that you are making your payments on time is by setting up autopay for all of your accounts. This will help you tremendously because it will guarantee that your payments are being made on time. Keep in mind that this is one of the most crucial steps you will have to follow and you will have to make sure nothing goes delinquent, no payments are missed and everything is made on time.
Getting pre-approved for a mortgage can really help you more than it would if you were to find a home you like and apply to see if you qualify for it. This will cut your search in half because you will not be wasting time looking for a house that you love just to find out that you did not end up getting approved for it. By getting pre-approved first, you will quickly find out what you can afford which will then help you narrow down your search a lot faster.
Keep in mind that lenders will still be looking at your income, credit history, employment history, assets and more during this process.
Keep It Low
Your credit card utilization may not seem that important to you especially if you are paying off what you owe, but this is an important factor in your credit score and how lenders will see you. Lenders will be evaluating your monthly spending report and how much you use the credit cards. However, not using your credit cards card can become a double edged sword for you because it can also decrease your score for lack of use and some credit cards may cancel on its own due to not being used. In order to keep your credit utilization at a good percentage, you will have to keep it less than 10 percent or better to ensure that you look financially responsible. It will help show that you are making your payments and you know how to use your credit and money wisely.
If you have a high credit utilization then paying off your balance multiple times a month will help you tremendously as well as setting up automatic balance alerts to help monitor your credit utilization. Along with doing these things, you can also apply to increase your credit limit to help make your utilization become lower. However, this last recommendation will involve a credit check.
If you need help with a down payment then you are not out of luck in buying a home. You can actually receive help from various places no matter if you have student loans or not. There are plenty of programs that can help you with a downpayment through the state, local and federal assistance programs. A few programs that can help you would be;the VA loans for the military, loans through the Federal Housing Authority and USDA loans.
If you can wait on purchasing a home and pay off all of your credit card balances before applying then that can be the easiest and best option for you even if you have school loan debt. However, if you are not able to wait and need to get in a home fast then the next best route to take is consolidating your credit card debt with a personal loan. The loan can make it a lot easier for you because you would be paying off one single debt rather than multiple things at the same time and the loan can be at a lower interest rate than your credit card interest rate. This would be extremely beneficial in the long run because you would be saving some money while improving your credit score at the same time.
Refinancing your student loans can really help your debt-to-income ratio, especially when a lender is involved. A lender will be looking at everything in your debt-to-income ratio and that includes your monthly student loan payments. In order to really help you get approved for a home and reduce your monthly payments on your student loans is to refinance. This can make your interest rate go lower and it shows that you are paying off what you owe which looks good to the lender.