Sure, college was fun and rewarding… until you got the bill. Now you’re wondering if your future financial plans have to be put on the backburner because of the debt you incurred. You may be wondering if you have to wait until you’ve paid off your student loans before you can dip your toe into the real estate pool. The answer is, no. You can still qualify for a home loan with student loan debt. However, you’ll need to do some number crunching first.
How Lenders View Student Loan Debt
In a recent NAR report, data shows many current homeowners have student loan debt. “Nearly one-quarter of all home buyers, and 37% of first-time buyers, had student debt, with a typical amount of $30,000.”
The bottom line is, you don’t need to be debt-free to buy a home or qualify for a mortgage. However, one of the most important things that lenders look at is your debt-to-income ratio (or, DTI). They will look at credit card debt, car loans as well as any associated debt with your outstanding student loan balance. The more debt you have, the more likely you are to run into financial problems that may impact your ability to make your mortgage payments.
According to Apartment Therapy, “Buying a home with student loans is possible, experts say. The proof is in the numbers, too: Some 40 percent of first-time homebuyers have student loan debt, according to the NAR study. While the debt does make it hard to transition from renter to homeowner, it is indeed possible.”
Refinance Your Student Loans
While your credit score can help you leverage a better interest rate, your DTI will determine whether you can qualify for the mortgage itself – and it needs to be at least 43 percent lower than your gross income. Getting that ratio even lower by refinancing your loans can result in lower interest rates. If you have a credit score in the high 600s, you likely qualify to refinance your student loans, which can impact your monthly payments and positively affect your DTI.
Pay Down Loan Balances: The Gig Economy Can Help
It might be easy to say “oh just pay down your balances!” But you might be thinking it’s not that easy. Consider the gig economy. Today it’s not as hard with technology and the gig economy. You can sell your extra stuff on Poshmark, drive an Uber, run errands with TaskRabbit, or deliver food with DoorDash!
There are now so many ways to side-gig to make some extra cash. Get that extra gig and apply your earnings to your student loans or other debt. A lower debt amount, prior to purchasing, can mean an increase to your credit score and help you qualify for a better mortgage loan rate.
Consult a Real Estate Professional
Doing your own math and assessing your situation is a great first step. However, the best way to make a decision about your home buying goals and next steps is to talk to a mortgage broker or a real estate professional. A professional advisor can walk you through your specific situation, your options, and what has worked for other buyers like you. Thinking of buying your first house? If you want to learn more about how you can prepare for future homeownership, contact me today..lets strategize.