Advice on Buying a Home Whilst having Student Loan Debt

Advice on Buying a Home Whilst having Student Loan Debt

What Effect Do Student Loans Have on Your Budget?

When assessing your financial profile for a mortgage, lenders take into account a number of criteria, including your credit score. It depends on how much debt you owe, what kind of debt you have, and whether you make on-time payments on all of your obligations.

Your credit score may be impacted positively or negatively by student loan debt. Your credit score will drop if you make late or missed payments on your student debt. Additionally, these negative credit items will stay on your credit record for a number of years. However, timely payments might raise your credit score. To improve your credit and to offer yourself peace of mind, set up monthly automatic payments for your student loans.

Make a debt-to-income ratio calculation

A lender can comprehend your financial status and whether you are comfortable taking on a mortgage to repay it by looking at your debt-to-income ratio (DTI), which is only one of many methods you can do this (in addition to any other debt you may have, including student loans, car loans, credit cards, your monthly mortgage or rent payment, and so on).

Add up your recurrent monthly spending and debt payments to get your DTI, then divide that total by your gross monthly income (pre-tax). The next number is your debt-to-income ratio, which is expressed as a percentage. Lenders typically prefer to see a number around 43%. A lender will view you as less risky if your DTI is lower.

How to lower your DTI?

Discuss your financial situation and the type of DTI desired with your local lender. There are options available if your DTI is still too high but you're eager to start the homeownership process!

Your ultimate objective is to lower your DTI, therefore you'll want to lessen the total amount of debt you owe (or increase your monthly income). Your student debt might be reduced by paying down more than the required minimum each month. Additionally, look into grants or scholarships that can aid with your student loan repayment.

Take your budgeting seriously. You'll need to take money from other sources if you wish to save up to make greater monthly student loan installments. Limit weekly happy hours with friends or that pricey morning latte, stick to a stricter budget, and cut back on items like streaming services. You can also check your bank statements for monthly subscriptions that you might have forgotten about. You may have an extra couple hundred dollars each month if you do these tiny things that add up.

You'll be prepared to submit an application for a mortgage loan once you start paying down your college debt (and any other substantial loans you may have) and reduce your overall DTI. To create a strategy, speak with a lender as early as possible!

A larger deposit will be beneficial.

Your monthly payments will be cheaper if you can make a higher down payment because it will lower the total amount of your mortgage. As a result, buying a property will be more inexpensive if you have gift money or can save up more money for a larger down payment.

In the end, a lender will examine your financial situation to determine whether you can afford a monthly mortgage payment. Your complete picture includes, at the most fundamental level, your credit score, DTI, taxes, proof of income, and assets. Will you be able to manage a mortgage payment on top of your current financial situation, or will it push you over the edge? You should keep them in mind when you create your financial plan and research your mortgage possibilities. So improve your financial health by speaking with a lender right away!

Begin saving

We comprehend. Saving money can seem difficult and unattainable when you are managing other costs while paying off student loan debt. The advantage is that any amount saved is preferable to none.

Make a monthly budget, and then stick to it. You can achieve your goal of becoming a homeowner in this method. We've compiled a list of the top budgeting apps with a variety so you may choose one that fits your needs, way of life, and objectives! See which one fits you the best by checking them out!

Calculate the Mortgage You Want

Knowing how much house you can afford will be beneficial when you explore mortgages and home ownership. Your home search is made easier by concentrating on properties that fall within your price range by working with a loan officer to obtain pre-approved for a loan amount. You are in a better position to buy if you have a pre-approval because it reduces your mortgage loan alternatives and puts you on the fast track to closing.

Use our mortgage calculator to run the numbers to determine how much you are comfortable spending each month on a mortgage payment. Apply right now if you're prepared to speak with one of our loan officers.

Determine the Mortgage's Costs

At this stage, you've probably settled on a figure or rough range that you feel comfortable paying as a monthly mortgage (principal and interest). The cost of purchasing a property includes additional expenses in addition to the monthly loan payment.

The appraisal and house inspection, which normally cost between $300 and $500 each, the mortgage insurance that is typically necessary if the down payment is less than 20%, closing charges (about 2 to 5 percent of the purchase price), and more are all additional expenses. Additionally, it's crucial to get ready for any home renovations, routine upkeep, and maintenance both inside and outside the house!

How to Boost Your Credit Score?

When determining whether to approve you for a mortgage, lenders heavily weight your credit score. You can't get rid of your credit history, but you can keep track of it, figure out what makes it go down, and fix it if necessary.

What causes a credit score to decline?

• Credit cards that have reached their limits.
• Payment errors.
• Adverse entries on a credit report (bankruptcy, collections, etc.).
• Repaying a debt.
• Deleting accounts for credit cards.
• Credit checks (or credit pulls).

How to raise credit:

• Pay your bills each month on schedule.
• Don't just pay the bare minimum.
• Limit your use of credit (credit cards) to no more than 30% of your credit limit.
• Create credit from begin by opening manageable, minor lines of credit.
• Refrain from making major purchases if you want to apply for a mortgage.
• Keep an eye on your credit.

The lesson of the tale is that having debt—including debt from school loans—does not exclude one from purchasing a home. After all, we've learnt that having some debt can be advantageous because it might demonstrate to lenders that you are responsible with repayment of borrowed funds.

Each person has a unique financial condition. Get in touch with one of our loan officers right away if you're prepared to discuss your homeownership aspirations with one, have questions answered, or want to learn how to position yourself for success while applying for a mortgage.

This article was contributed on Jul 31, 2022