High Student Loan Debt And Buying A House
If you're hoping to apply for a mortgage soon, you may want to consider switching to a plan that lowers your monthly bill. Income-driven repayment plans, for example, often do that. (Fannie Mae, the federal mortgage giant, made it easier for student loan borrowers to get a mortgage in 2017, by allowing lenders to consider the lower payments on these plans.)
high student loan debt and buying a house
Fortunately, owning a house will not impact your monthly student loan payments on an income-driven repayment plan, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit that helps student loan borrowers with free advice and dispute resolution.
Various government agencies that back mortgages, from the U.S. Department of Veterans Affairs to the U.S. Department of Agriculture, will use different formulas to calculate how much of a burden your student debt poses.
If the property is bought through a trust, the child will inherit the house when the parent dies. (There are also, of course, a number of ways to climb out of the red and become current on your loan again.)
Although conventional loans typically require a minimum down payment of 5%, there are other types of loan programs to consider if you have student loan debt and are struggling to assemble a down payment.
Established during the Great Depression, Federal Housing Administration (FHA) loans enable you to qualify for a mortgage with a down payment as low as 3.5%. You can also get approved with a lower credit score (think low to mid 600s). Finally, FHA loans often allow a higher debt-to-income ratio than conventional mortgages, which can make all the difference to borrowers with student loan debt.
Yes, you can still get approved for a home loan even if you have student loan debt. Proof: In 2020 nearly a quarter of all home buyers, and 37% of first-time buyers, had student debt, with a typical outstanding student loan balance of $30,000, a National Association of Realtors survey found.
These conventional loan programs are specifically meant for home buyers with lower income and higher debt levels. You might be able to get approved with a DTI ratio of up to 50% with compensating factors, and a down payment of just 3% is allowed.
If you have large student loan debts and a lower credit score, an FHA loan may be the best option. Backed by the Federal Housing Administration, FHA loans allow for a down payment of just 3.5% with a credit score of 580 or higher. And FHA lenders can approve DTIs of up to 45% or even 50% on a case-by-case basis.
Keep in mind that FHA typically charges mortgage insurance premiums (MIP) until you refinance to a different type of loan or pay off your house. Because of this, conventional loans are often cheaper for home buyers who can qualify based on their credit scores.
Luckily, mortgage lenders are aware of this. And many offer special home loan programs for these types of professions. Certain loans can be extra lenient about your student debt repayment plan or your employment history. And they might offer additional perks like reduced upfront fees. For more information, see:
Under special circumstances, borrowers might qualify for student loan deferment or forbearance. This means payments are postponed for a period of time (although interest can still accrue on the loan).
Fannie Mae says that for conventional loans, lenders can use a $0 student loan payment for borrowers who document that their payment actually is $0 under an income-driven repayment plan. Again, you have to find a lender willing to go through the extra steps and document your $0 payment correctly.
You might also ask your student loan servicer about a graduated repayment plan. A graduated repayment plan means your student loan payments start low, then rise every two years to meet the rising income of a typical college graduate.
With lower monthly payments, your debt-to-income ratio is reduced, which could potentially help you qualify for a home loan. However, some lenders may use future payments for qualification. So be upfront with your lender about your graduated payment before applying.
Most home buyers should aim to save at least 8%-10% of their target home price in cash to cover the down payment and upfront loan fees. The bigger your down payment, the easier it will be to get approved with a higher debt ratio.
Your credit history and credit report matter because lenders use these to determine your creditworthiness. All loan types require that buyers meet a minimum credit score requirement. Some loan programs have higher minimum credit scores than others, but you can generally get approved with a FICO score above 580 as long as you meet other loan program requirements.
Student loans are the biggest debt many first-time home buyers carry. They can have an outsized impact on your mortgage budget compared to other forms of borrowing like credit card debt. But how do you actually crunch the numbers and figure out whether you can afford to buy a home?
The first step is to determine your debt-to-income ratio, factoring in student loans and any other debts you pay monthly. You can see a full list of debts that are and are not included in your ratio here.
You can reduce your DTI by paying down debts, including car loans and credit card balances. One thing you should realize is that mortgage lenders are looking at your monthly debt obligations, not the total sum of your debt. Anything you can do to lower how much money you owe monthly will help improve your DTI. Pay off credit cards with smaller debts first to clear them off the books.
As you get closer to applying for a home loan, make every effort to live below your means. Aggressively attack your debts to pay them off as quickly as possible. You might also want to get a second job or start a side business to increase your gross monthly income.
You can also look to lower your monthly student loan payments. Depending on your situation, refinancing or consolidating your student loans to obtain a lower monthly payment could be the way to go. Another option if you have federal student loans is to switch to an income-driven repayment plan.
In 2017, Fannie Mae had some changes to the way it looks at student loan debt. These changes are specific to people paying back student loans through an income-driven repayment plan. Here are the new guidelines, according to Fannie Mae:
Student Loan Planner specializes in making custom plans for borrowers in six figures of student debt, so your dream of homeownership can come true. Click the button below to schedule your student loan consultation.
Terms and conditions apply. To qualify for this Earnest Bonus offer: 1) you must not currently be an Earnest client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through the designated Student Loan Planner link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed.
Actual rate and available repayment terms will vary based on your income. Fixed rates range from 5.21% APR to 9.24% APR (excludes 0.25% Auto Pay discount). Variable rates range from 5.24% APR to 9.19% APR (excludes 0.25% Auto Pay discount). Earnest variable interest rate student loan refinance loans are based on a publicly available index, the 30-day Average Secured Overnight Financing Rate (SOFR) published by the Federal Reserve Bank of New York. The variable rate is based on the rate published on the 25th day, or the next business day, of the preceding calendar month, rounded to the nearest hundredth of a percent. The rate will not increase more than once per month. The maximum rate for your loan is 9.13% if your loan term is 10 years or less. For loan terms of more than 10 years to 15 years, the interest rate will never exceed 9.21%. For loan terms over 15 years, the interest rate will never exceed 9.24%. Please note, we are not able to offer variable rate loans in AK, IL, MN, NH, OH, TN, and TX. Our lowest rates are only available for our most credit qualified borrowers and contain our .25% auto pay discount from a checking or savings account.
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay.
These examples provide estimates based on payments beginning immediately upon loan disbursement. Variable APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 5.89% APR would result in a total estimated payment amount of $17,042.39. For a variable loan, after your starting rate is set, your rate will then vary with the market. Fixed APR: A $10,000 loan with a 20-year term (240 monthly payments of $72) and a 6.04% APR would result in a total estimated payment amount of $17,249.77. Your actual repayment terms may vary.Terms and Conditions apply. Visit com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
You can take advantage of the Auto Pay interest rate reduction by setting up and maintaining active and automatic ACH withdrawal of your loan payment. The interest rate reduction for Auto Pay will be available only while your loan is enrolled in Auto Pay. Interest rate incentives for utilizing Auto Pay may not be combined with certain private student loan repayment programs that also offer an interest rate reduction. For multi-party loans, only one party may enroll in Auto Pay
Terms and conditions apply. To qualify for this LendKey Bonus offer: 1) you must not currently be an LendKey client, or have received the bonus in the past, 2) you must submit a completed student loan refinancing application through the designated Student Loan Planner link; 3) you must provide a valid email address and a valid checking account number during the application process; and 4) your loan must be fully disbursed. 041b061a72