How Can I Afford a New Home with Outstanding Student Loan?March 14th, 2022 by Administrator
Do you have a student loan but wish to buy your dream home as soon as possible? Is a student loan preventing you from buying your home in your favorite city? If yes, you should know that you can make it work and own your dream house without waiting for years to fully repay your student loan.
As per the latest Student Loan Debt Statistics, 35-year old people in the US have the highest average outstanding student loan debt. That’s the age when people think about settling in an area with a nice neighborhood and the comforts of a big city.
If you also wish to own your own home soon, here is what you need to do.
Improve your DTI ratio as it plays a major role in getting a mortgage loan.
Lenders don’t care about the dollar amount of debt but they do look at your Debt-to-Income Ratio. So, if you have a solid and reliable regular income and less debt, many mortgage lenders will be willing to give you a mortgage loan for your dream home.
What is DTI Ratio?
It refers to the percentage of your monthly income that goes towards your paying debt. To calculate DTI, you can use online DTI calculators. While the ideal DTI ratio can vary depending on your loan type, most lenders prefer a DTI ratio of 50 percent or less. If your DTI is higher than 50 percent, you need to work on it to bring it down.
To improve your DTI ratio, you can repay one of the existing debts or get a job that pays better or you can do both.
- Keep an eye on your credit score as it shows the riskiness of a borrower.
A candidate with a credit score of 750 or higher is considered excellent. To check your credit score, you can request a free copy of your credit report from credit reporting agencies, such as Equifax®. If your credit score is below, you need to improve your shopping habits and see how you can improve the score. In case you find any error, you should report it to the credit bureau instantly and get it rectified. Lastly, reduce the number of credit cards you have and keep your credit utilization at least less than 30 percent or 10 percent if possible.
- Be financially responsible and make all your payments timely.
Lenders want to lend their money to borrowers who are financially responsible people. Besides, the timeliness of your payments greatly affects your credit score, and how much amount you repay each month affects your DTI to some extent. So, to make sure on-time payments, it is highly recommended to set up Autopay for all your accounts so that payments are made right on time each month without any skip and miss. If there is a delinquent payment, pay off the balance as soon as you can.
- Explore your mortgage options and get pre-approved for a home loan.
While paying a 20 percent down payment is recommended by experts, it is not a strict requirement by all lenders. Depending on your situation, you might be able to buy a home with a down payment of as less as 3 percent. VA loans, FHA loans, low-down-payment conventional loans, and Fannie Mae HomeReady loans (for low-income first-time buyers) are some of the options you can explore. Then, try to get pre-approved for a home loan with a lender.
If you get pre-approved for a home loan, you will know how much you can afford for your new home. Lastly, contact a local real estate agent in the area you want your home as they are well-familiar with the available properties in their service areas and can help you find a home within your budget.