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How to buy a house when you have student loans
Student loans are simply a part of reality for many adults today. However, when it comes to buying a house, the prospect can be quite intimidating when you also have student loans. If you're considering buying a home while still shouldering student loans, there are a few things to consider.
How do student loans impact a house purchase?
Unfortunately, student loans can impact a home purchase. To begin with, it can be difficult to save up for a down payment when you're also paying off student loans. Secondly, your debt-to-income ratio and credit score can be negatively impacted by your student loans. These two factors combined can make a home purchase very challenging.
How to improve your credit score
Your credit score is an important factor in determining your qualification for a loan. Therefore, your credit score is an excellent place to work on making yourself eligible for a home purchase. One of the best ways to increase your credit score is to pay your student loan and credit card payments on time. Paying on time indicates that you are a responsible borrower. In addition to on-time payments, you will want to pay off any credit card debt you have - or at least seek to get the balances as low as possible. However, you do not want to close off even unused lines of credit. Keeping these opens can help your credit score.
How to lower your debt to income ratio
Before you apply for a loan, it's important to lower your debt to income ratio as much as possible. The debt to income ratio calculates your monthly debt payments divided by your gross monthly income. Most lenders like to see a DTI below 43% before they will approve you for a mortgage. In order to improve your DTI, you either need to decrease your debt or increase your income. By paying off debt, you will accomplish both an improved credit score and an improved DTI. However, you may also want to consider taking on a second job for a time to increase your income as well (which in turn will help you pay down your debt).
Consider refinancing your student loans
A mortgage lender assessing your debt will look at several facets of your student loans. He will look at the amount of debt, the interest rate, and the time it will take you to pay them off. If you choose to refinance, you can often show your ability to pay off loans at a faster rate. When you refinance, your new lender will replace your original loans with a loan at a lower interest rate. In order to be approved for a refinancing, the first two factors listed above (your credit score and DTI ratio) will play an important role.
Apply for pre-approval
If you are making a home purchase with student loans, it is very important to apply for a mortgage pre-approval. Before you get your heart set on a home it is important to determine just how large of a mortgage you can be approved for. Pre-approval will help you set a realistic budget and will save you from having your dreams crushed.
Consider a down payment assistance program
If you're finding it difficult to save for a down payment, there are programs in place to help you out. There are some federal loan programs as well as first-time homebuyer programs that can help to ease the burden of down payments. Finding the right assistance can be the difference between impossible and possible when it comes to a home purchase.
Are you nervous about navigating the waters of home buying? Come talk to me today. I have a great deal of experience working with a wide range of clients, and consequently can help advise you in making wise decisions.
Information taken from Redfin.com
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