Do you worry that your student loan debt will make it hard to buy a home? Don’t worry, we can help you qualify.
As we enter graduation season, graduates from the past and present are reminded of the cost of their education. According to the most recent debt statistics, nearly 46 million Americans have student loan debt.
Many potential home buyers worry that it will be challenging to purchase a new home with a mound of student debt. However, there are options for those with student debt to buy homes.
First, let’s look at how student debt might affect your ability to get a mortgage. Then, we’ll show you how lenders view this kind of debt and give you some tips to improve your probability of qualifying.
How Student Debt Affects Ability to Get a Mortgage
First of all, your student loan debt will affect your ability to get a mortgage. But the good news is it’s still possible to qualify for a mortgage. It all depends on your situation. Several factors affect your mortgage approval. Here are some of the main things you’ll need to think about:
- Debt-to-income ratio – Lenders set maximum limits for your monthly mortgage payment based on what percentage of your income goes toward the amount of debt. This is known as the debt-to-income (DTI) ratio. Typically, you’re limited to a DTI ratio of about 43%, although this varies by loan type.
- Your credit score – Lenders generally have minimum credit score requirements when you apply for a mortgage. Your student can adversely affect your credit score if you’ve missed any payments. If you’ve made all of your payments on time, it will increase your credit score.
- Your income – There’s no minimum income when it comes to buying a house. However, a lender wants to know that you can afford the mortgage. This means you’ll need to prove you earn enough to cover your future monthly payments and that your debt-to-income ratio is within the acceptable limits.
How to Qualify for a Mortgage With Student Loans
Having student loans while buying a home can put a bit of a damper on what type of home you can get. However, student loans don’t ultimately limit your ability to afford a house or qualify for a mortgage. If you contact a good mortgage advisor, they’ll be able to help you figure out what type of mortgage suits you best and how that fits into your comprehensive financial life.
There are ways to increase your chances of qualifying. Here are the top tips we recommend following:
- Check Your Report for Mistakes – The first thing you need to do is get copies of your credit reports from the top credit bureaus. Once you get the reports, take some time to review them and check for any mistakes and errors that could help boost your score if fixed.
- Take Care of Your Debt – Next, develop a plan to help you take care of your debts. Paying debts shows you can be trusted and know how to manage your finances.
- Pay Your Bills on Time – A missed or a late payment punches your credit score downwards, resulting in bad payment history. A bad payment history reduces your chances of getting good mortgage rates and terms. If you want to raise your rating, pay loans, bills, and credit card payments on time. A great trick to reduce your credit consumption ratio involves making extra payments in the middle of your billing cycle.
Contact the Better Rate Mortgage Team!
Contact the Better Rate Mortgage team if you have student loan debt but are looking for a mortgage or have any mortgage-related questions. We specialize in making the home purchase or refinance process a great experience; whether this is your first purchase or your 10th, we make it happen for you!