There are about 45 million Americans who currently carry student loan debts. Having an existing debt is not ideal when you are planning to buy a home, but it does not mean that you cannot purchase a new home. If you create a strong foundation for your plan payment and have a reliable income source, you can buy a new home with an existing loan. Thankfully, the experts at Rex Real Estate have some additional information for any students who find themselves worrying about this unfortunate reality.
Steps to Buy A Home with A Student Debt
Here is a list of things you can do well in advance to prepare yourself financially to buy a home while carrying a student loan.
Improve Your Debt-To-Income (DTI) Ratio
Lenders always consider your DTI ratio when approving your loan. The debt-to-income ratio is a gauge of if you have enough money to pay for your loan. It is calculated based on your income and is the percentage of your monthly income that goes towards your debt. If you have a higher DTI ratio, it will impact the interest rate. However, you can reduce your DTI ratio by earning more money and repaying your existing loan.
Refinance Your Student Loans
Your monthly payments can be reduced if you refinance your loan. A lower interest rate is an indication that you are on track to pay your student debt. Financial experts suggest that you should refinance your loans, or pay your debts to lower your DTI while submitting your mortgage application.
Increase Your Credit Score
Your credit score is also crucial when you are applying for a mortgage. Similar to your DTI ratio, it is also an indicator to the lenders if you are a risky borrower. You can improve your credit score by paying your monthly bills on time, reducing your credit card use, avoiding any hard credit checks, and keeping your inactive accounts open.
Debt Payment by Others
If willing, you can request your family or friends to support you by paying a portion of your debt. Even if a small part of your loan gets paid, it can go a long way in getting your mortgage approval.
Co-Borrow the Loan
If your family or friends are also thinking about purchasing a house, you can jointly apply for a mortgage. In this case, both your incomes and credit scores will be considered in your mortgage application. Co-borrowing can increase your chances of approval and help you secure a higher loan at a lower interest.
Consider a Co-Signer
If you are not absolutely comfortable with co-borrowing a loan, you can consider asking your family or a friend to be a guarantor on your loan. In this case, the guarantor’s income and credit score will be considered by the lenders when sanctioning your loan and you still get to be the sole owner of the property.
How Can A Good Mortgage Professional Assist You?
A good mortgage professional can help you navigate through the process of financing for your new home while on a student loan and ensure that all your options are thoroughly assessed. A mortgage professional will understand your unique situation and will work relentlessly to make home-buying a possibility for you regardless of your student debts.