Student Loans May Affect Mortgage Eligibility
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While student loans can help you achieve your educational and career goals, those loans can negatively affect the home-buying process. You may believe that you can take on the responsibility of a mortgage, but because of its balance size and long-term repayment schedules, a lender may tell you otherwise. Below is everything you need to know about applying for a mortgage when you have student loans.
Getting a Mortgage with Student Loans
When you visit a lender, he or she is going to look at your front-end and back-end debt-to-income (DTI) ratio. This will help the lender decide the amount you can afford for your loan program. Your front-end ratio, also known as the housing ratio, is found by dividing your projected monthly mortgage payments by your gross monthly income. Your back-end ratio accounts for all of your debt obligations in comparison to your income. The higher your minimum monthly payment is for your student loans, the more it can interfere with your ability to qualify for a mortgage.
How to Buy a Home With Student Loan Debt
Just because you have student loans doesn’t mean you can’t purchase a house! Use our steps below to help improve your credit and prove to lenders that you are capable of handling this responsibility.
1. Improve Your Credit Score
Your credit score is the most important factor that lenders consider. One of the most important things you can do to improve your credit score is to pay all of your bills on time, especially your student loans. Another way to boost your score is to use different types of credit (for example: credit cards, car payments and student loans). This allows lenders to see that you can handle different kinds of debt.
2. Decrease Your DTI Ratio
Many lenders follow the 28/36 qualifying ratio to determine your eligibility. Knowing this, you should not spend more than 28 percent of your gross monthly income on total housing expenses and no more than 36 percent on total debt service, which includes your new mortgage payment. To reduce your DTI, either pay off some of your debt or increase your income with a second job.
3. Consider Down Payment Assistance Programs
Certain loans, like FHA and USDA loans, require little to no down payments. But if you do not qualify for these loan programs, there are a number of down payment assistance programs that are acceptable to lenders. Be sure to ask your loan officer about the assistance programs!
Apply for a Home Loan Today
Whether you are still paying back your student loans or you are debt free, our experts at Home Point Financial want to help you qualify for the best mortgage program to fit your needs. For more information, be sure to contact us today!