Death in the family, illness, loss of a job, or divorce can take a great toll on our daily lives and finances. If tragedy strikes and you are unable to afford your monthly mortgage payments and find yourself falling behind, you may be able to modify your home loan to catch up and avoid foreclosure.
Buying A Home With Student Loan Debt
For many would-be homeowners, fulfilling the American Dream and owning their own home is often put off by one obstacle in particular—student loan debt. As a first time homebuyer with student debt, you may find yourself renting a home or apartment instead of purchasing your own home, which can be demoralizing if you yearn to own your own home.
The average borrower owes more than $30,000 in student debt, and according to National Association of Realtors, 80% of Millennials do not own a home, and 83% of those say they are holding off due to student debt.
Thankfully, your dream of responsibly owning a home can be realized with the right steps and assistance.
Have Good Credit
It goes without saying that you need good credit when you want to purchase a home with student loan debt. Good credit shows that you are responsible about making your payments on time and will earn you some negotiating power and more financial options.
If you need to boost your credit score, there are several ways you can do so, including:
- Getting a secured credit card and using it responsibly.
- Pay all monthly debt payments on time, including student loans, car payments, et cetera.
- Getting credit for making rent payments on time.
Pay Off Other Debts
If possible, pay down your highest interest debt first or if that’s not possible, consolidate or refinance your student loans. Paying more than the minimum payment required each month towards your principle or making a lump sum payment are good ways to help reduce your overall debt, but remember to do so responsibly. You don’t want to focus on one debt and find yourself falling behind in another.
Removing some debt from your portfolio will open up more financial options and lower your debt-to-income ratio.
Lower Your Debt-To-Income Ratio
When compared to your monthly gross income, are you spending most of that paycheck on your monthly student loan payments? When assessing you as a candidate for a home loan, lenders look at your monthly debt commitments, not your overall debt, to determine your debt-to-income ratio. If your ratio is above 50%, you have too much debt and may find yourself hard pressed to qualify for a home loan.
Reducing your monthly debts in the ways mentioned previously as well as other strategies like taking a side job for extra income can help lower your debt-to-income ratio as well as get you out of debt faster.
Apply For The Right Mortgage Program
Student debt doesn’t have to hold you back. There are many options available to you via mortgage programs like:
- No money down mortgages
- FHA loan
- VA loan if you are a veteran
- Fannie Mae HomeReady™ mortgage and other similar programs
Before you apply for a mortgage program, make sure you speak with a trusted financial advisor and your lender to determine which is best for you. They will also help guide you through the process and help you understand the pros and cons of each.