Buying a Home with Student Debt
Student debt sounds very scary, and in some ways it is. Many young people coming out of college and into the work field today know the financial burden of student loans. All too often people let the fear of their loan push them away from making a large financial decision, like purchasing a home. Housingbuzzblog.com (powered by Union Home Mortgage) gives some advice and words to ease any fear you may have in "Can You Buy A Home With Student Debt?". Here I will hit on their main points.
1) Build your credit score. I'm sure many of you are aware that building your credit score is important, however ruining a credit score is easy. This is where student loans can actually help you in the mortgage process. Paying your loan on time and at least the minimum payment will actually help your credit scores and lenders will be more likely to approve you for that mortgage if they see a consistant payment history.
2) Control your debt-to-income ratio. This is the factor that lenders look at when determining how much they can be comfortable with loaning you for a house. The good news is that this is the part you have the most contol over. If you have multiple lines of student debt, you can consolidate those accounts and perhaps lower that portion of your debt. Being sure to avoid adding new sources of debt, like car payments and extra credit cards (PSA - just because you have a $5,000 credit limit on your credit card; does NOT mean you need to use all of it! Try to keep it under 30%), will also keep your debt-to-income ratio at bay.
3) Don't forget about your down payment. The down payment is very important. Putting money down is like giving a lender a security blanket. It significantly increases your likelihood to get approved for a loan. So, while you are paying your student loan on time every month and keeping a low debt-to-income ratio, you should be putting aside as much money as possible for a down payment!
The true secret of getting approved for a loan is to have good and complex credit without having too much to pay for. If you can play these two correctly, you should be able to save up for a sizable down payment, and that will up your ability to buy.
After you have purchased your home with these tips, you will love that you are building equity and actually saving money because mortage payments are usually less than rent!