With the student debt amounts more than tripled from the 90s, there have been less millennials buying homes for many reasons. A big factor in the hold up for millennials is the amount of student debt they carry. With an average of $30,000 in college debt, plus the debt of auto loans and credit cards, buying a home may seem impossible but there are ways to overcome this barrier and purchase a home.
How Does Student Loan Debt Affect Your Chance of a Mortgage?
Good question. The biggest factor this plays is increasing your debt-to-income ratio. The lower your DTI ratio, the better you look to a lender. Since your student loan payments are factored in to your DTI ratio, the lower your student debt, the better. If you have student debt on top of consumer debt, work to pay off your consumer debt (credit cards, car loans, etc.) first. If you’ve managed to only have student debt then your first step should be to get that lowered.
Additionally, if you’ve missed payments on your student loans then that will negatively impact your credit score. If you’ve made payments on time then that may improve your credit score. The amount you pay per month on your student debt can also be factored in to your debt-to-income ratio. If you’re concerned that the amount you pay on your loans could negatively affect your chances of being approved for the mortgage you need, look into a repayment option that offers a lower monthly payment.
What Options Do You Have if You Cannot Pay off a Large Amount of Debt Right Away?
Your loan officer will look at all your options with you to find out which type of loan would work best for your situation. Sometimes a conventional loan isn’t the best fit for you and nobody […]