Millennials and older individuals alike are extending their years in college in order to qualify for (hopefully) better-paying and more satisfying jobs. Such ambitions are admirable, but they can also delay goals of homeownership when you have student debt. Wyndham Capital Mortgage is here to tell you that it’s entirely possible to qualify for a mortgage loan even when you’re saddled with student debt.
How To Get A Mortgage Even With Student Loans
Build Your Credit Score
Fix up your credit score before you fix up a home. In the months or even years leading up to applying for a mortgage, pay all of your bills on time, especially your student loan(s). You should also try not to use more than 30 percent of your credit limit, which makes lenders that much more willing to do business with you. We also recommend that you not close any old credit card accounts you’ve paid off, as they can help build your credit. On the flip side of that tip, you should also refrain from opening new credit accounts before applying for a mortgage, as doing so can take a bite out of your credit score.
Work on Your Debt-to-Income Ratio
Before approaching a lender, you want your debt-to-income ratio to be no more than roughly 36 percent. This ratio is the portion of your total income that’s spent on student loans, car payments, rent, credit card payments and the like. If your DTI ratio is high, you might want to delay applying for a loan until you can wrangle it down to a more favorable percentage.
Lower Your Mortgage Payment
While exploring your options for condominiums, you may find you have an easier time qualifying for traditional homes in the same price range. This is because you have to pay homeowners association dues when you have a condo, which is a cost traditional homeowners don’t have to worry about.
In addition to looking at homes instead of condos, you can also look for properties located in neighborhoods that have low property taxes, which also lowers your monthly mortgage payment. You can also ask lenders about discount points and “buying down” your loan as additional ways to get a mortgage loan with a student loan.
Prequalifying gives you a solid idea of how much you’ll need for a down payment on a home and how much home you can afford. In order to be prequalified, you’ll need to submit:
- Your credit score
- A two-year history of your employment
- Personal information, such as your driver’s license, Social Security number and current address
- Monthly expenses
- Investment and bank account statements
- Gift letters, if you were gifted money to put towards a down payment
Note that prequalifying doesn’t mean much to sellers, but right now you’re merely focusing on getting a mortgage. Your prequalifying letter will give you a framework for the type of home you should look for in order that you don’t overextend your reach, which is likely to overextend your finances. Prequalifying can also let you know how much you should ask to borrow for your mortgage to stand the best chance of being approved. This goes a long way in saving you time and resources.
Related: First Time Home Buyers Checklist
You may want to buy a home now, but looking over your finances and financial future could paint a bleak picture. Rather than being disappointed, simply know that this is just a chapter in your life, one that will eventually come to a close. Continue to save up money for a down payment, improve your credit score as much as possible and keep your student loans under control. That way, when you are in a better financial position to buy a home, you’ll have everything you need to stand the best chance of success.
Having student loans doesn’t mean you can’t have the keys to your own home, it simply means you have to be savvier than other borrowers. Put your education to good use and graduate from hopeful homeowner to successful homeowner. Check out this First Time Home Buyer's Checklist we've crafted with you in mind to help you stay on track.