The good news is that if you have student loans, it is possible to buy a home. But student loans can affect what you are eligible to borrow and do have an impact on the mortgage application process. Here’s the scoop.
Credit scores are key factors in loan origination. Whether your student loan debt is $10,000 or $100,000, it will not negatively affect your credit score if you have a proven history of making payments on time. A good credit score helps assure lenders that you are not high-risk and will give you access to the best loan options. Work on building up your credit score to 760 or higher.
Lenders will give strong consideration to the amount of your total debt and how it compares to your income. This is your debt-to-income (DTI) ratio. A 43% ratio may qualify you for a federally insured loan. FHA and VA loans have more lenient lending requirements with minimum down payments needed. There are also some down payment assistance programs available for first-time buyers.
To qualify for a conventional loan, lenders prefer a DTI less than 36% so you have more flexibility in paying your mortgage. Paying down or consolidating your debt and raising your available income by cutting back on spending will lower your DTI.
When you have student loans, it is often more difficult to have any substantial down payment funds. The best rate and terms will be found with conventional loans by putting 20% down. With strong credit, you can put as little as 3% down.
Refinancing your student loans may be an option for improving your debt-to-income ratio. Refinancing can reduce how much you will be spending over the loan term for your student debt.
If you have student loan debt, call or email me, and I can help you navigate the available opportunities.