Can I Buy a House with Student Debt?
By John Fitzgerald, Grand Rapids Branch Manager
For some people, getting a college degree is necessary for their chosen occupation. Unfortunately, getting a college degree can be expensive and often results in student loans that must be repaid once the student has graduated. Recent statistics show that the average student loan debt is over $32,500 and the average student loan payment is $393 per month.
If you are one of the over 44 million U.S. citizens with student loan debt, your debt might affect your ability to become a homeowner. If you are looking to buy a home, you might find these steps below helpful in preparing for that next step in life:
- Keep your credit score high – The higher your credit score is, the more loan programs you may be qualified for. Paying your student loan payments, revolving debt and other installment debt payments on-time is mandatory. Also, keep your credit card balances low and avoid going above 50% of your credit limit. Your credit capacity is a factor in increasing your credit score.
- Consolidate your student loans – There are many student loan debt repayment programs available for you to consider, so speak with a student loan expert about which option works best for your personal circumstance. Even if your loans are in deferment or forbearance for a short time period, mortgage lenders will still calculate a payment to account for your outstanding loan debt.
- Manage your debt-to-income ratio (DTI) – Your Debt-to-Income Ratio (DTI) is the ratio of your monthly debt payments divided by your gross monthly income. This is a critical number because most lending programs don’t allow for your DTI ratio to be above 43%. Managing your DTI ratio might require you to postpone large purchases, like vehicles or vacations. Keep your payments as low as possible.
- Get pre-approved for your mortgage loan –Before you start shopping for a home, the smartest thing you can do is meet with your Michigan First Mortgage loan officer to determine what you will qualify for based on your current income and assets that you have available for a down payment. Your mortgage lender will provide you with your options regarding programs that require little or no down-payment. Your options may depend on your income level, credit score, and the geography of where you want to purchase your home.
Depending on the results of your loan officer’s analysis, you may need a co-borrower to provide additional income if your DTI is too high for the home that you want. Or, you might look for gift funds from a family member to assist you with down payment funds if you require a larger down payment.
As you can see, student loan debt doesn’t have to stop you from becoming a homeowner, but it will require some pre-planning before that next big step.