How to get a Mortgage with Student Loan Debt
Student loan debt doesn't mean that you're unable to make any large purchase, like a car or mortgage.
Keeping Up with Your Student Loan
College is one of the most pivotal experiences in people’s lives. It’s a time of exploration, development, and engagement. Typically, you leave with a collection of lifelong friends, an education, and lots of fond memories. Unfortunately, if you are like most, you also graduated with a daunting accumulation of student debt. Don’t fret, you are not alone in this. According to Make Lemonade, there are more than 44 million individuals dealing with student debt and they collectively owe $1.5 trillion. But does this mean you won’t be able to qualify for bigger purchases, like a mortgage, with your student loan debt?
Your student loan debt may seem like it’s simply too big for you to be able to live big. Despite having student debt, you can still make advancements in your life and leave that ramen-for-dinner-every-night phase in your early twenties.
Part of living the American Dream is homeownership. I know you’re wondering how on earth you could possibly buy a home with your student debt following you everywhere you go. The truth is that if you play your cards right, homeownership could be right around the corner rather than a distant daydream.
Your Credit Score Matters
When applying for any type of loan, your credit score plays a huge role in getting approved. A credit score ranges between 350-800 and many factors culminate to determine this score. Understanding your credit score and what it consists of is important so that you can keep it as high as possible by avoiding unfavorable financial behavior. Your student loan debt is accounted for when determining your credit score, so it is critical to stay on top of payments and make sure you are always in good standing with your loan company.
If you for whatever reason you won’t be able to continue making your student loan payments or can’t pay in full each month, make sure to reach out to your loan provider. More likely than not, they will be able to work with you to find a resolution. This is a much better approach then skipping payments or defaulting on the loan. If you exhibit delinquent behavior like paying late or not at all, your credit score will be affected in a negative way. A bad credit score can close a lot of doors including buying a home. If your credit score isn’t where you would like it to be, you can take steps to improve it over time but the best thing to do is to maintain a good credit score from the get-go.
Can I really get a mortgage with all this debt?
The short answer is yes. As long as you make the right moves, you could be planning your first housewarming party before you know it. A survey conducted by Student Loan Hero found that 43% of American college graduates postponed buying a home because of their student loan debt. Your financial situation may be more flexible than you thought. If you are confident in your income and comfortable taking on more debt, you can buy a house without your student loans hindering you.
This is How You Do it
It’s time to take your home buying dreams off the back burner and make it happen. Here are five practical steps you can take to get a mortgage even if you have student loan debt.
- Maintain a Good Credit Score
The higher your credit score, the better your buying power. You can’t manage or improve what you don’t measure. So if you have kept your head in the sand, the first thing you should do is check your credit score. Checking your credit score is free with most sites and won’t affect it. Once you know your score, you can follow a plan to maintain or improve it.
- Decrease your Debt-to-Income (DTI) Ratio
This ratio will be calculated when finding out if you qualify to buy a house. To get a ratio, your monthly debt payment will be converted to a percentage of your monthly income. Your DTI ratio will tell lenders whether you have the excess funds to cover your mortgage payment and student loan debt. A good way to decrease your DTI ratio is to pay off your debt as much as possible to bring that number down. You could also increase your income for a better ratio.
- Check out Down Payment Assistance Programs
When buying a house, there is more to consider than just the mortgage payment. You will also be required to provide a down-payment as part of the home buying process. To make buying a house easier, there are a number of programs that assist in coming up with the down-payment. You can look into FHA loans for your state or VA loans if you have served in the military. If you decide to buy in a rural area, you might not have to put anything down by qualifying for a USDA loan.
- Apply for Pre-Approval First
Most first-time homebuyers start with the house then consider their finances. This means they start looking at houses without having any realistic idea about what they can afford. There’s a better way to go about it. Apply for pre-approval so you can gauge what you can afford. Once you have your buying power in mind, you can start looking at houses in that price range instead of falling head over heels for a house you can’t afford. The application process for pre-approval will save you a lot of heartache in the end.
- Refinance your Student Loan Debt
One way to lower your monthly student loan payment is to explore your refinancing options. By lowering your interest rate, you are able to pay your loan back faster than you would be able to with a higher interest rate. This will free up some extra cash to put towards your home. Lenders will then be more inclined to grant you a mortgage even though you have student loan debt.
The good news is that that loan you took out at eighteen years old or when you hesitantly borrowed more for graduate school won’t ruin your chances of buying your home today. You have to live somewhere, and you have options if you follow these guidelines. Galaxy will always be there for you if you need assistance in buying the house of your dreams.