Let's face it - education can be expensive! While there are so many benefits to post-secondary education, many students graduate with a significant amount of debt.
As you hang up your cap and gown and start settling into your post-education life, you may start to think about things like buying your first home.
Here's everything you need to know about buying a home if you have student loan debt.
The short answer is yes! You can certainly buy a home if you have student loans.
It's a common misconception that student loans are a barrier to becoming a homeowner. Many people who have outstanding student loans own their own homes.
While student loans are generally considered "good debt", they can still impact your mortgage eligibility and the type of home you're able to buy.
It's definitely possible to buy a home if you have student loan debt (or other types of debt). However, it will be a significant factor in the process of getting a mortgage and buying your home. Here are some things you should know:
As the name suggests, DTI is a calculation that measures the percentage of your total monthly income needed to pay off debts.
They'll look at things like:
The amount of debt you can carry will vary depending on your lender. As a general rule, your monthly debt, including your mortgage, should be no more than 35-50% of your total monthly income, depending on the program for which you best qualify.
So, high debt payments, such as student loans, may impact your mortgage affordability. In turn, this can impact the type or size of home you can purchase.
If your DTI is high, you can improve this by paying off existing loans or by increasing your income. Worried about your DTI or need to know for sure where you stand? Schedule a consultation with The 'A' Team and we will put you on the right path.
Student loans can often impact your credit score, which is a key part of what lenders look at before you can qualify.
Your credit score tells lenders how risky you are to lenders. Your score can range from 300-850. Your credit score dictates what loans you might be eligible for and can also impact your interest rate. Minimum credit score requirements may vary - however conventional loans typically require a score above 620.
Fortunately, having a student loan can have some significant benefits here. Your student loans can help improve your credit score when you make your payments on time. This shows lenders that you are able to manage your debt responsibly.
As you pay off your loans, your debt utilization ratio will also decrease. This can also build your credit score.
However, if you consistently miss payments or just took out your loan. You can also see it negatively impact your credit score. So it's important to make your payments on time - regardless if you're planning to buy a home.
It all depends!
Many people choose to buy homes - even if they still have outstanding debt.
The most important thing to consider is if you're able to keep up with the mortgage payments. Even if you're eligible for a mortgage, you should consider the implications of adding a mortgage payment to your monthly expense.
Once you feel ready to buy a home, the first step is to get a pre-approval. Your lender will look at your student loans and other factors in your mortgage application. They'll work with you to determine your mortgage affordability and eligibility so you can go into your home search with confidence!
We hope this article was of value to you. For more great tips, bookmark our site and for all your mortgage needs, visit the A Team at TMFFMS.
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