We all know that student debt can be expensive, even as expensive as owning a home. So what do you do if you want both at the same time? That's tough, since a big factor when you buy a home is your debt-to-income ratio (dti). Many lenders will look at this and automatically disqualify you if it's too high, because a mortgage will make your percent of monthly income going towards debt too great. On top of that, many lenders want you to put at least 20% down, which can be hard to build up with student loans each month. So what can you do if your student loans are preventing you from owning the home of your dreams?
How Mortgage Lenders View Student Debt when you buy a home
Your student debt is a big factor in the equation of whether or not you are eligible for a mortgage. Your monthly payment divided by how much money you make each month, will contribute to your debt-to-income ratio. If this gets above 60%, in most cases, you can't afford a home. Even worse, if you're on income-driven repayment or your loans are deferred, you still get seen as if you're making the standard loan payments. Even if you do not pay that much towards debt, you can still get hurt by having large student loans.
How to Save Up to Put 20% Down with Student Debt
One of the most difficult parts of buying a home is finding the money for a 20% down payment. Saving up may take a lot of time, but if you set up a budget and start putting money away each month, you can have the down payment in no time. Outside of winning the lottery, having a solid budget and saving money each month can help you afford your dream home.
What if I told you, that, in some cases, you didn't even need to put 20% down? Sounds pretty good right? Well with options like first time homeowners mortgages, this is true. Tools like an FHA Loan can help you secure a home for as little as 3.5% down. This option is only available to those who haven't owned a home before. And beware, because you may also be liable to get mortgage insurance, which can be an additional cost each month.
Refinance Student Loans with an Income Share Agreement
Sometimes the biggest issue with student loans is that they hurt your debt-to-income ratio too much to allow you to buy a home. Well Defynance may have a solution for you. When you refinance your student loan with an income share agreement, your debt is gone. Instead of a loan with interest, you now pay a small percent of your income for a set period of time. After making a set number of payments, your obligation is done. This can remove debt from your credit report and help lower your debt-to-income ratio so that you can qualify for a mortgage for your dream home.
