Getting A Mortgage With Student Loans
Student loan debt is not an unfamiliar concept these days. 44 million Americans have student loan debt equaling $1.5 trillion! If you have student loan debt yourself, then it might not surprise you that many people say their educational debt has prevented them from becoming homeowners.
It’s a common misconception that if you still have student loan debt, you won’t qualify for a mortgage. In reality, obtaining a mortgage remains a very reasonable concept. Below are a few things you should focus on to make it happen!
Keep a close eye on your Debt-to-income ratio
Your debt-to-income ratio, or DTI, is one of the most critical factors potential lenders will consider when evaluating your ability to handle monthly mortgage payments. DTI is calculated by adding up your monthly debts, including your expected mortgage amount, and dividing it by your gross monthly income. DTI of 43% is the highest ratio (most of the time) a borrower can still have to qualify for a mortgage.
4 easy tips to lower your Debt-to-income ratio
- Increase the amount you pay monthly toward your debt. Extra payments can help lower your overall debt more quickly.
- Avoid taking on more debt. Consider reducing the amount you charge on your credit cards and try to postpone applying for additional loans.
- Postpone large purchases, so you’re using less credit. More time to save means you can make a larger down payment. You’ll have to fund less of the purchase with credit, which can help keep your debt-to-income ratio low.
- Recalculate your debt-to-income ratio monthly to see if you’re making progress. Watching your DTI fall can help you stay motivated to keep your debt manageable.
Your Credit Score Matters!
Lenders evaluate your credit score to determine if you qualify for a mortgage. Having a good credit score is a crucial step in receiving that mortgage you’ve been dreaming of. The best way to raise your credit score, while also having college loans to repay, is through timely monthly payments. Make it a habit!
Start Saving! Your savings matter!
If owning a home is your goal, you will need to have money saved up for a down payment. Having money saved for a down payment is helpful when battling student loans because the more money you put down initially, the less you will have to borrow.
- If feasible, pay a 20% down payment. It is the most recommended percentage by experts.
- Play around with an online mortgage calculator to get an estimate on how much you can afford.
Just because a 20% down payment is ideal doesn’t mean you have to pay it. You may be able to get a mortgage with as little as 3.5% down. Contact one of our mortgage experts at Hall Financial and get pre-approved! CONTACT US TODAY