Student loans can be an obstacle for many when pursuing their dream of buying their first home. Aside from having the debt that can pose a challenge in getting approved for a loan, paying down school loans can also cripple your ability to save for important things such as closing costs, down payments, etc.
However, there are several ways to decrease the impact of student loans and get yourself in a prime position to buy your first home. Read on to learn how student loans affect your mortgage application and buying power.
Having a stellar FICO score increases your chance of getting mortgage pre-approval, plus it helps you secure a loan with a favorable interest rate. Payment history accounts for 35% of your FICO score and is a major factor in your score’s calculation, and mortgage lenders like seeing borrowers with a history of on-time debt payments.
If you consistently pay your student loans on time, you’ll see a boost in your FICO score; however, a missed payment or defaulting on the loan will lower your credit score.
Your debt-to-income ratio is a calculation of how much you owe versus how much money you have coming into your household. Mortgage lenders use your DTI ratio to determine your eligibility.
In most instances, you’re limited to a debt-to-income ratio of around 43%; however, the specifics vary per loan type. A huge student loan payment, plus other monthly expenses, can increase your DTI ratio, which may make getting pre-approved for a loan more challenging.
Individuals with student loan payments may struggle to save enough cash for a down payment.
Take out a 0% down payment loan: Veterans and active duty service members are eligible for VA loans, which are zero down payment mortgages. You can also take out a 0% down USDA loan if you want to purchase a home in a rural area.
Lower your debt-to-income ratio: You can decrease your DTI ratio by paying down some debt. Paying off debt gets rid of a recurring expense, plus it frees up more cash flow. You can pay off a different debt source if you don’t have the money to make an extra payment on your student loan bill.
Apply for down payment grants: If you’re a first-time homebuyer, you may apply for either local or national down payment assistance programs. The grants will cover part or all of your down payment.
You can still buy a home even with a student loan, but you may struggle to get pre-approved if you have too much debt overall. Unsure where you currently stand and want to get some real insight? Contact us today for a free and personalized consultation.
Helping clients break through the barriers that impede homeownership one loan at a time. Give us a call today for help with your home purchase or refinance!
Lighthouse Mortgage Group, LLC
6250 Orchard Lake Road, Suite A
West Bloomfield, Michigan 48322
Phone: (248) 383-0026
Fax: (248) 377-0168
Lighthouse Mortgage Group, LLC strives to ensure that its services are accessible to people with disabilities. Lighthouse Mortgage Group, LLC has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Lighthouse Mortgage Group, LLC makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows lighthouse-mtg.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Lighthouse Mortgage Group, LLC accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Lighthouse Mortgage Group, LLC continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Lighthouse Mortgage Group, LLC website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
If you are experiencing difficulty with any content on Lighthouse Mortgage Group, LLC website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: email@example.com