Despite, or maybe because of, the coronavirus lockdowns, most of the United States is experiencing a crimson-hot housing market. However, if you have student loans, buying a house might be even more difficult.
According to Federal Reserve and New York Federal Reserve statistics, more than 44 million Americans owe around $1.6 trillion in student loans. With mortgage lenders tightening their lending requirements to offer a higher cushion against loan default, many student-loan holders may find it challenging to purchase a home.
Here are a few tips which can help those with student loans to qualify for a mortgage.
Try to improve your debt-to-income ratio
Lenders are usually looking at two debt-to-income ratios when evaluating applicants. The front-end ratio reflects an applicant’s required mortgage to his/her monthly income. The back-end ratio provides borrowers with additional flexibility which can strengthen their case. How? It demonstrates an applicant’s monthly payments (such as rent, vehicle payments, student loan costs, and minimum credit card payments) to their monthly income.
Borrowers can increase their chances of qualifying for a mortgage by taking simple steps such as paying off credit card debt. Unlike most other types of mortgage, where monthly payments are fixed, paying down all debts lowers your monthly mortgage payment.
Every small bite you take at that mountain of debt helps your debt-to-income ratio.
Borrowers with private student loans may want to try refinancing to receive a better deal and optimize their debt-to-income ratio. Such a change will certainly prolong the repayment period, suggesting that you will pay more throughout the life of the loan. Nevertheless, you may pay somewhat more in interest throughout the life of the loan in return for a reduced mortgage rate, which will lead to more significant savings. Borrowers who have federal student loans should be mindful of this method. Why? Because refinancing might result in the loss of some benefits such as income-driven repayment and student loan forgiveness.
Borrow less
Putting down a bigger amount of money will surely help you qualify. Saving for a bigger deposit could only make temporary changes in the budget. It surely will be beneficial to homebuyers because they will be prepared to tighten their belts in case of a future crisis.
Also, it is feasible that, depending on the circumstances, a borrower might be better suited to using cash to pay down current debt rather than saving for a bigger deposit. What to do in such a situation? We’d suggest looking for a more affordable house. But, again, you don’t want to end up in a place where you’re struggling to make ends meet.
Every day do something to improve your credit score
A decent credit score leads to lower interest rates and monthly bills. Mortgage holders can do this by opening new accounts sparingly, paying on time, and keeping existing accounts open to take advantage of a more extended average credit history and a higher amount of accessible credit.
Think twice before switching to another job. It will surely affect the lending decision
Taking a better-paying job may seem like a good decision. Still, employment stability is essential to certain lenders, who may need at least two years of employment with your present company. So, at least until the house purchase is completed, staying in your current job might be beneficial, particularly for mortgage applicants with student loans or other debt that may make qualifying more difficult.
Do you have any questions about getting a mortgage with a student loan? Still not sure if you can qualify?
Please feel comfortable trusting us to find the right mortgage program for you by giving us a call for a confidential discussion.
We can analyze your mortgage scenario and let you know your options without pulling your credit. Contact us now.
