The student debt total in the US has surpassed the 1 Trillion dollar mark and more and more students are graduating with a diploma in one hand and a student loan debt bill of $35,000 or more in the other. With this increased financial burden many would-be first time home buyers are worried that they will never be home owners.
How Student Loan Debt Affects Home Buying
Having a large balance of unpaid student loans can negatively impact your mortgage approval. Strict new borrowing guides force lenders to disqualify candidates with high debt to income ratios. If your debt consumes 40-45% of your income there is a strong possibility you will be denied for a home loan.
Loan Deferment is another obstacle you may encounter when applying for a home loan. Due to a down economy many student debtors have deferred their loans (this simply means they have been granted a delay in repayment due to going back to school or financial hardship). While this is an excused delay in repayment, it could be unfavorable for your loan acceptance. It is better for your student loans to be in repayment mode and be in good standing before applying for a mortgage.
Keep Student Loans From Crushing Your Home Buying Dreams
Before you go too far down the road of looking at beautiful houses you wish to own one day, it is important for you to meet with a lender to start the pre-approval process. This will help you determine if you are ready to buy a house, how much house you can afford and what, if any, obstacles you need to overcome before buying.
The following tips will help make sure you get approved:
- Know your credit score. Your lender will pull your credit for you but if you are 3-6 months out from even thinking of contacting a lender then you might want to request a copy of your own credit report. Fix any errors and take care of any accounts that are overdue or unpaid.
- Consolidate or Pay Off Student Loans. If you have any small student loan accounts you can work towards paying them off. Many young people are a ways off from that but you might be eligible to consolidate your student loans and receive a lower monthly payment.
- Decrease your debt to income ratio. If you have a high percentage of debt that you cannot immediately reduce, try to increase your income. See if you are eligible for a raise or think of the possibility of getting a second job for a while to flip your debt to income ration in your favor.
- Save up a larger down payment. The more money you are able to put down, the less you have to borrow. Some or all of your down payment money might be able to come as a gift, talk to your lender for more details.
- For extreme cases consider having a co-signer on your loan. Having a relative co-sign on your mortgage can be a risky move but it is possible to use it to give you more buying power or help you get approved.
To get more information on buying a home despite your student loans, call us at 314-571-9225 or fill out the form on this page and one of our expert real estate professionals will contact you.