If you are a first-time home buyer, you might think that it will be difficult to purchase your first home because of your student loan debt. The American Student Assistance did a study and found that 55 percent of people who have student loans feel that their debt is keeping them from home ownership. This day, mortgage rates are historically low and many homes offer low and no down payments for their mortgage. You may not know, but you could have the ability to buy your first home, even if you are under the umbrella of student loan debt. In this article, we will discuss how it is possible to maintain payments to your student loans while also putting money down towards your mortgage every month.
Income, Credit Score and Down Payment
The three main factors that will determine your ability to purchase your own home are: your down payment on the house, your income and your credit score. There are other aspects that are considered too, like your citizenship status in the United States and your employment history. Your mortgage application will require that you are able to meet a minimum credit score. Depending on what kind of program you’re looking at, you will be able to determine if your credit score need to be low or high.
If you have a good monthly income outside of your debt, that will most likely be the strongest determinant that you can exhibit in order to get a loan approval. This ratio is called the debt-to-income ratio and will give a better prediction of whether you can afford to buy your new home or not. If you have a solid income and are able to put down a decent down payment, then you might be even more likely to have your mortgage application approved.
How Your Students Loans Factor into Getting Approved
When you apply to purchase a home, creditors will compare your monthly payments to your student loans with your monthly income. Depending on what you earn on a monthly basis, after paying your student debt, lenders will determine your debt to income percentage. If you have a bachelor’s degree or higher, lenders will look more favorably upon your bid for purchasing a home.
If you earn a high income and you put down a large down payment on the house, that will also positively affect your ability to secure a mortgage with a lender. Lenders will also look at the other assets and payments that you have to make. If you have a car payment, credit card debt or any other payments, they will take them in consideration, especially if you are making payments regularly and on time. But if your payments and debts push past your debt to income percentage, then you will have trouble securing a home loan.
Some Advice for Student Loan Carriers Looking to Make the Housing Plunge
Your student loan payments might be eating out a chunk of your earnings monthly, but the government can help you reduce your payments each month if you meet certain qualifications. One way that you can reduce your monthly student loan payments is by switching your repayment plans in your loans. A graduated repayment plan is a low start plan that raises every two years to match the rising income of a graduate.
You can also try loan consolidation as a means to reduce your monthly student loan payments. If you consolidate your loans, you can lump your balances together and lower your interest rates.
You can also consider changing the length of your payback. This will reduce the monthly amount that you have to pay back towards your student debt and that will lower your debt to income ratio. The downside to this might be that you have to pay back higher interest in the long run, but your monthly payments will be smaller and you’ll be able to handle these payments and potentially your mortgage.
Wait Until You Are Ready to Purchase
If you’re struggling to make your student loan payments, if you are not able to make your payments on time, or if your student loans are in forbearance, then you shouldn’t be thinking about purchasing a home at this point. You might be frustrated because you can’t accomplish this goal, but getting your career and finances established is more important than taking on more responsibility than you can handle.
Take this time to get your student loan payments down as low as possible. It will help you in the long run by lowering your interest rate, raising your credit score and easing the pressure on your head. Taking care of yourself this way in the present will build your character and transform your expectations.
Home ownership while you are still paying student debts is very much possible. The factors depend on your income, your credit score, your employment history and your ability to make a down payment. There are many barriers that can prevent you from purchasing the home you want in the location that you desire, but if you take these factors into consideration, then purchasing a home might be very possible for you. We hope this advice was helpful for you! Good luck in your future !