A quick disclaimer before we get into this topic. I’m not a mortgage broker, I’m a REALTOR. And for the best advice on how to get approved for a loan, you’ll want to talk with a mortgage broker. If you don’t have those contacts, I am happy to send you mine and if you have your own agent they probably have their contacts as well that they can share. Now let’s talk a little bit about some suggestions on how to relieve student loan debt from impacting your ability to get a mortgage.
I’ve been out of school a long time. But yeah, like you, I’m still paying down my college debt. And I didn’t even finish. Since it doesn’t look like Trump is planning to forgive us of this just yet (here’s hoping right?), I know that what’s on some people’s mind is, “How do student loans affect my ability to buy a house?”
Here’s a fact: as of 2019, 83% of non-homeowners say student loan debt is preventing them from buying a mortgage. So you’re not alone. It’s a hefty burden, and can create a lot of uncertainty. But outside of making it more difficult to save for that down payment, a lot of people are buying homes while managing that student loan debt.
By itself, a student loan isn’t going to keep you from buying a house, it’s the way it affects your debt to income ratio that most lenders are looking at. Much like a car note or any another type of personal debt, a lender is mostly looking at how much you spend per month versus how much you make in a month. For example, if you have $1000 in bills per month, and you make $2000 per month, your debt to income (or DTI) is 50%.
That means your spending half what you make. Lenders like to see a DTI at or below 30 to 40%. So, you’d want to pay down a couple credit cards, or pay your car off, or even trade for a less expensive vehicle to reduce your debt from 50% of your income, down to 40 or 30%.
Of course, you credit score is going to impact your ability to get a loan as well, so keep that number up by keeping your credit usage below 20% of your credit limit if possible. Both of these factors, your DTI and your credit score are going to also impact the rate of your loan. The better your score, the lower your DTI, the better the rate you’re going to get. Which means the less money your house will cost over time.
Another couple of suggestions if your student loan debt is keeping you from purchasing a home:
If you don’t have much, pay more toward your loan every month to get it down. This could lead you to my next suggestion. Which is to consider refinancing or consolidating some of your debts (even credit cards). Getting a personal consolidation loan might cut your monthly overhead in half.
Lastly, if you can make more money, that always helps. And if you’re going to try to make more money, consider looking for a job that will help with your student loan debt. Student loan repayment assistance programs have become a popular employee benefit in recent years. So, if big brother won’t help you do it, maybe your boss will.
If you’re thinking of relocation to Nashville – I have a free relocation guide that you are welcome to download. Just click the link below to get a copy right now. I’ll see you next week.