It is not ideal to buy a new home while you still have an existing debt since it puts a toll on your monthly mortgage payments. But that does not mean that a student in debt cannot buy a home. Students with an existing loan who have a reliable income and a solid financial plan to handle the payments can still buy a home.
Steps to Follow If You Want to Buy A Home with Student Debt
Here is a list of steps that you can follow to prepare yourself to buy a new home with your student loan:
Improve your debt-to-income ratio
Lenders always look at your debt-to-income ratio or DTI ratio when going through your mortgage application. They want to ensure that you have enough funds to make your loan payments. DTI is the percent of your monthly salary that contributes to your debt. If you have a high DTI ratio, it can affect your interest rate. However, you can lower your DTI ratio by earning more income and repaying your existing debt.
Refinance your Student Loans
You can refinance your loan to lower your monthly payment. A low interest rate indicates that you are on track to pay off your student loans. Financial experts suggest that you should pay your debts or refinance them to make your DTI more manageable when submitting your mortgage application.
Increase Your Credit Score
The credit score has an important role when you are applying for a mortgage. A lower credit score is an indicator to the lenders that you are a risky borrower. You can improve your credit score by making monthly bill payments, keeping your inactive accounts open, lowering your credit card utilization, and avoiding any hard credit checks.
Debt Payment by Others
If your family or friends are open to helping you pay even a part of your debt, it can help you in getting approved for your mortgage.
Co-Borrow the Loan
If your family or friends are also planning to buy a house, you can submit a joint mortgage application. This will allow both your credit reports and salaries to jointly support the mortgage application. Co-borrowing helps with easy approval, and you can receive a higher loan for a lower interest rate. Combining your savings helps lower the overall housing costs, and you can enjoy long-term interest savings.
Consider a Co-Signer
If you are not comfortable co-borrowing the loan, you can ask your family or friend to become a guarantor on your loan. In this case, the guarantor’s income and credit report will be taken into consideration but you will still get to be the sole owner of the house.
Hire a Good Mortgage Professional
Apart from following the steps above to manage your finances, it is recommended to hire a mortgage professional who will help you navigate through the burden of your debts and assist you in understanding your options. An experienced professional will review all your options before presenting them to you. Moreover, a good mortgage professional will understand the uniqueness of your situation and work relentlessly so that you can purchase the home of your dreams despite your student loans. The mortgage experts at Rex Real Estate have more helpful information for students in this unfortunate situation on their blog here: https://blog.rexhomes.com/buying-home-student-loan-debt/