Being weighed down by tens of thousands of dollars in student debt is one of the most stressful things plaguing millennials in the current economy. It can feel as if you’ll never have a chance to lead a financially stable life, barring you from opportunities such as purchasing a home. So how do you navigate such hardship? Below you’ll find some tips on how to purchase a home even when you have student debt, provided by the mortgage professionals at Rex Homes.
The Student Debt Crisis
The National Association of Realtors recently found that over 80% of Americans between the ages of 22-35 have not yet purchased a house due to the burden of educational loans. With this in mind, take comfort in knowing that you are not alone. Millions of people across the country are struggling with the massive burden of student debt. The silver lining is that this struggle is not the end of your journey into home-buying.
- Pay Down Some Existing Debt
One of the most prominent issues with having a large amount of student debt is its effect on your debt-to-income ratio. When you apply for a mortgage, the debt-to-income ratio is calculated and plays a role in the determination of your eligibility to be funded. The greater your debt, the less likely a lender is to be willing to work with you, as you appear to be a risky borrower.
To get around this, you have the option of either paying down existing debt, within your financial capabilities, or refinancing existing loans. This will help to repair your debt-to-income ratio and make you appear more appealing to lenders. (Even if you aren’t able to pay it down significantly, lenders will take notice that you are actively managing your debt. A little is better than nothing!)
- Get Some Help from Fannie Mae
It may come as a surprise, but the same government-sponsored lender that manages your student loans can also help you face the challenges of home-buying. Some of the ways Fannie Mae offers assistance to prospective homeowners include:
- Includes Certain Types of Debt: In loan applications, Fannie Mae excludes non-mortgage debt (i.e., auto loans, student loans, credit cards, etc.) that are paid by someone other than yourself.
- Cash-Out Refinance: They offer flexible options of paying down debt with high interest rates while allowing refinancing to lower mortgage rates.
- Student Debt Payment Calculation: Lenders are allowed to accept information related to student loan repayment on a mortgage application. This makes it easier for individuals with student debt to qualify.
- Get a Co-signer
Having a co-signer on any application, whether it be for an auto loan or a mortgage, is a very reliable way to increase your chances of being approved. With this option, however, you must ensure that you are fully aware of the risks associated with applying with a co-signer before moving forward (one of the most important risks is that the loan will affect their credit as well).
If ever you desire to remove the co-signer from your loan, your only option is to refinance that loan. Refinancing typically requires a few thousand dollars, so just be aware of that moving forward.
Purchasing a home with the burden of student loan debt is an extremely challenging experience, but not one that you must lose to! Follow these tips to get into your dream home sooner than you thought possible.