How to buy a home with crushing student loan debt

Real Estate | 8 Jul |

Student loans: they are the bane of both Millennial and Gen X existence. Many people, especially prospective home-buyers, have lost confidence in their finances as they watch their pockets shrink and wither under the weight of this debt. It may seem that you will never get the home of your dreams as long as you’re paying back these loans. Fortunately, that is far from the truth. If you’re looking to buy a new home, despite the balance in your Fannie Mae or Nelnet account, there are some ways to realize your aspirations.

1. Improve Your Debt-to-Income Ratio

Whether you are currently paying back student loans or are awaiting repayment options during deferment, you must familiarize yourself with the importance of the debt-to-income ratio. This is one of the core criteria by which lenders will determine your eligibility for a home loan. If your debt-to-income ratio is too high, for example, a lender may interpret your financial standing as less than suitable for repayment capability.

The debt-to-income ratio also plays a direct role in determining your credit score, another crucial standard that lenders use in determining your borrowing eligibility. A high debt-to-income ratio can harm your credit score, which, in turn, narrows your opportunities for funding. To improve this aspect of your finances, here are a few things you can do:

• Consolidate your existing student loans.

• Pay down revolving debt (e.g., credit cards).

• Make consistent payments to your student loans.

Even if your ratio is currently high, it will benefit you greatly for lenders to see that you are actively working to improve your finances.

2. Consider Financial Assistance

Repairing your finances to buy a brand-new home doesn’t have to be a solo endeavor. There are many ways to enhance your financial capacity for buying, some of the most common options being:

Choosing to borrow with a co-signer. Having a co-signer on a loan application with you will significantly improve your chances of being approved by a lender. (That is, assuming that the co-signer has good credit and a health debt-to-income ratio.)

Government funding. You may be able to take advantage of a few state or federal government loan programs like the following two options:

• Student Debt Payment Calculation. This expands the types of financial information a lender can access when you apply for a home loan. This provides a significantly more accurate depiction of your financial standing and thus improves your chance of approval.

• Student Loan Cash-Out Refinance. This program allows prospective home-buyers to simultaneously pay a mortgage and student loan debt through refinancing options.

3. Seek the Help of a Mortgage Professional

Having a mortgage professional by your side throughout the home-buying process is critical to your financial security before and after you move into your dream home. An experienced mortgage professional will guide you through each facet of all financial matters related to your future purchase. They will take the time to learn your unique circumstances and help you to narrow down the options available to you when paying for your brand-new home.

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