You can buy a house with student loan debt. Students with huge loan debt can still buy a house on loan. You need to follow certain requirements.
If you are a student wishing to buy a house, this post will clear all your doubts. You can buy a home with student loan debt if you improve your debt-to-income ratio, increase your crest score, get pre-approved for a mortgage, or use the benefits of a first-home buyer program.
Your student loans will affect your ability to buy a house in different ways. If you already have student loans, this decreases the DTI ratio and the credit score. However, paying off your student debt will limit your saving opportunities, and you have trouble saving money for a downpayment.
How to Buy a house with a student loan debt
Improve the DTI
When a lender considers your application, the first thing that they check is the DTI. This is a significant indicator of your financial stability. The DTI or debt-to-income ratio shows which portion of your monthly income goes to paying off debt. This indicator reveals whether you afford to pay the mortgage together with the other obligations. The ideal DTI that most lenders look for is less than 28%.
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To become eligible for a mortgage, you should work hard to pay off your current debt. Paying off your credit card balance, for example, is an excellent way to improve the DTI. Another method to improve your ratio is to increase your current income. You can choose whether you want to ask your employer for a raise or start a side hustle to grow your monthly income.
Improve the credit score
If you want to buy a house with student loan debt, you need to improve your current credit score. The higher your credit score is, the more reliable you look in the eyes of lenders. This means that you will get better terms and lower interest rates.
Some of the best ways to increase your credit score are simple. You should make sure that all of your bills are paid on time. Also, don’t apply for new loans for a while. As we already mentioned, lenders perform credit checks to see if you are risky.
However, these checks can drop down your score. In the meantime, make sure that you don’t apply for other loans that require a hard credit check. Don’t forget to check your credit report regularly. In case you see an error, report it to get it corrected.
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Down Payment assistance
Having to pay off your current student loan will leave you no space for saving money. However, don’t worry if your family can’t support you with financial aid. Check for the assistance program available and see if you are eligible to take part.
Some of the eligibility criteria are: being a first-time home buyer, having a low income, or completing a specific course. Some of the forms in which you can get down payment assistance are matched savings, down payment grant, and forgivable second mortgage. Make sure to check with the available options and find the one that fits your financial situation.
Buying a house is an essential financial decision that you will make in your life. However, let the financial ability lead you in the process. While there are plenty of houses on the property market, some of them might be too expensive for your budget. To know how much you can afford, get a mortgage pre-approval.
This will inform you about the loan amount that you can qualify for. Once you know how much you can borrow, you can search for a house that fits the particular budget. This way, you can avoid any disappointment.
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We already explained how student loans affect your eligibility to buy a home. The debt decreases your DTI and credit score, which are the crucial factors that lenders review when deciding if you are a good fit. To increase your chances of getting a mortgage, you can do simple actions to make sure you pay all bills on time.
Also, don’t apply for additional loans. Despite increasing your DTI, this action will decrease your credit score. Also, check with the federal first-time homebuyer programs. These offer many benefits, such as low interest rates and no down payment. However, there are specific criteria that determine who is eligible. Make sure to check whether you qualify for one of the federal options available.