Buying a home with an existing loan is not an ideal situation as it adds to your monthly mortgage payments. However, with a reliable income and a solid plan set up to handle your payments, you can still buy a new home with student debt. Thanks to the experts at Rex Homes, you can read this additional insight on how to handle this situation if you are a former student looking to buy a home.
Steps to Follow If You Want to Buy A Home with Student Debt
Below is a list of steps you can undertake to prepare you financially to buy a new home with a student loan:
Improve your debt-to-income ratio
The most important aspect that lenders consider is DTI or your debt-to-income ratio while sanctioning a loan. They want to gauge if you have enough cash to make your payments. DTI is the percentage of your monthly income that contributes towards your debt. A higher DTI ratio can affect your interest rate. You can reduce your DTI by repaying your existing debt while earning more income.
Refinance your Student Loans
Refinancing your loans can lower the monthly payment. Lower interest rates indicate that you are right on track to pay your student loans. Experts recommend to pay your debts or refinance them to make your DTI more manageable while applying for mortgages.
Increase Your Credit Score
Similar to the DTI, the credit score also plays an important part in the mortgage applications. It indicates to the lender if you are a risky borrower. You can build up your credit score by applying techniques like on-time monthly bill payments, lower credit card utilization, keeping inactive accounts open, and not having any hard checks on your credit.
Debt Payment by Others
If you have friends or family that are willing to assist you by paying even a small portion of your current debt; it could go a long way in supporting to get approved for your home mortgage.
Co-Borrow the Loan
In case you have friends or family that are also looking to buy a house you could apply for a joint mortgage. This allows both of your incomes and credit scores to support the mortgage application. Co-borrowing can support easy approval, and help you receive a higher loan with a lower interest rate. By combining your savings for a higher down payment, you can save on long-term interests by lowering the overall monthly housing costs.
Consider a Co-Signer
If you do not feel comfortable purchasing a house with someone else, you can ask a friend or family to become a guarantor on your loan. Lenders will consider the guarantor’s income and credit score in such cases and you will be the sole owner of the property.
How can a good mortgage professional assist you?
It is recommended to get in touch with a knowledgeable mortgage professional who can assist you in navigating through the burden of student loans helping you understand your options. An experienced mortgage professional will ensure that all your options are assessed completely and presented to you. Additionally, a good professional will understand your unique situation and work tirelessly so that you can buy a new home in spite of your student loans.
