What Students Can Do to Buy a Home with School Loan Debt
About 45 million Americans carry student loans. If you are one of those people who is already bearing the burden of your educational loan, the idea of buying a new home may not seem feasible to you. However, students with a school loan debt can follow a few steps to overcome their existing student loan burden and prepare themselves to buy a new house.
Improving Your Debt-To-Income (DTI) Ratio
Lenders approve mortgage loans by considering the debt-to-income or DTI ratio. The larger your debt, the higher your DTI ratio. A high DTI ratio indicates to the lenders that you may be a risky borrower. Student loans undoubtedly create a higher DTI that may prevent you from securing a good mortgage loan.
Financial experts suggest that individuals with huge school loan debt should think about refinancing their loan before submitting their mortgage application. Reducing monthly expenses is another way to demonstrate to the lender that you manage your debts and are not a risky borrower.
Refinancing Your Student Loans
Homebuyers can reduce their monthly payments by refinancing their existing loan. A lower interest rate is an indication that you are on track to pay your student debt. It is recommended to refinance your loan or pay off all your debts, including credit card bills to lower your DTI ratio.
Increasing Your Credit Score
Along with the DTI ratio, your credit score is a critical factor that will be considered by mortgage lenders when approving your loan. Like the DTI ratio, lenders can gauge if you are a risky borrower by reviewing your credit history. Homebuyers with student loans can improve their credit score by avoiding any hard credit checks, making timely bill payments, reducing their credit card usage, and keeping all inactive credit cards open.
Debt Payment by Others
If you feel comfortable, you can also request a family member or a friend to support you by taking the responsibility of paying part of your school loan. Small contributions can also go a long way in getting your mortgage application approved.
Co-Borrowing the Loan
Co-borrowing is a good option to improve your mortgage approval chances and secure a high loan amount at a lower interest rate. If willing, homebuyers can consider buying the house with their family or friends. In such cases, you will have to submit a joint application for the mortgage, and both your incomes and credit history will be considered by the lender when approving your mortgage.
Co-Signing the Loan
If co-borrowing does not seem like a feasible option, homebuyers can think about asking a friend or family member to be a guarantor on the loan. If you co-sign the loan, the guarantor’s salary and credit score will be considered when your loan is being sanctioned, but you still get to be the sole property owner.
Seeking Help from a Mortgage Professional
Homebuyers with student debt are recommended to contact a good mortgage professional who can assist them in navigating the financing process. An expert mortgage professional will help review your finances and make sure that all your options are thoroughly assessed. Moreover, a skilled professional will understand your unique situation and work tirelessly to ensure buying a house is still a possibility for you, regardless of your school debts. The mortgage experts at Rex Homes have provided some additional information for students looking for guidance on this financial burden on their blog here: https://blog.rexhomes.com/buying-home-student-loan-debt/