Buying a Home with Student Loans
The housing market has been waiting for millennials to settle down and start buying homes instead of renting or remaining in their parent’s home for a few years now. If you ask any millennials, many of them will say these decisions are being prolonged due to the amount of student debt haunting them. The average Class of 2020 graduate had $28,400 in student debt according to Student Loan Hero. This is a huge financial burden to be facing, but we are here to tell you how you can still buy a home even with student loans.
Shop for a Home you can afford
This should be a rule of thumb for any purchase in life, if you can’t afford it, you probably should not be buying it. Home shopping can be tempting. You may be looking at multiple car garages, completely new appliances, high ceilings and much more. It is important not to get carried away. If you are a first-time home buyer, you may have to go with a starter home instead of your dream home but that will come with time.
Minimize Debt from Credit Cards and Car Loans
When applying for a loan these are the main factors taken into consideration:
- Income.
- Savings.
- Credit Score.
- Monthly debt-to-income ratio.
Your debt-to-income ratio shows the lender your total financial obligations including car payments, credit card debt and student loans in comparison to your income. To keep yours low, keep off as much debt as possible before applying for a mortgage.
Lower your monthly student loan payments
Even if you do not have any other types of debt, having a high student loan monthly payment could give you a high debt-to-income ratio. To lower that ratio and show your mortgage lender you have enough extra cash to make your monthly mortgage payments, it would not hurt to look into refinancing your student loans and seeing if you can lower your interest rate. Another option would be switching to an income driven payment plan, chances are that will lower your monthly payment.
Make your payments on time
It is never a negative if you have student loans, it is just important that you are making the payments on time. If you have proved you handle debt responsibly and have a good credit score to show for it, mortgage lenders will be more likely to approve you – even if you have outstanding student loans.
Save for a down payment and closing costs
Buying a home isn’t just as simple as taking on the mortgage; you will have to pay upfront for the closing costs and the down payment. Closing-related costs include the home inspection, mortgage loan origination fee, mortgage insurance, homeowner’s insurance premium and title fees. According to Zillow, www.zillow.com/mortgage-learning/closing-costs/, closing fees costs the average homebuyers between 2 to 5 percent of the cost of the home. A traditional down payment is 20% of the cost of the home but there are other options for borrowers that allow you to put less down so do not be discouraged.
Owning your own home is a tremendous achievement and can be done even with student loans. Contact our office today to get started!
