Getting Approved For A Mortgage With Student Loans

February 6, 2019

A wise man once said “Someone is sitting in the shade today because someone planted a tree a long time ago.” That man is Warren Buffett, and he is the CEO of one of the most elite Real Estate brokerages in the nation, Berkshire Hathaway HomeServices.  But that quote encompasses what purchasing a home is all about – investing in yourself and your future.  Yet so many people are refraining from purchasing a home because they fear they won’t be able to meet their obligations with their student loan debt.

The Whole Truth

Misinformation about student loan debt is one of the biggest factors that plays a role in people not purchasing a home of their own, sooner.
Misinformation about student loan debt is one of the biggest factors that plays a role in people not purchasing a home of their own, sooner. A mortgage payment is typically less than the rent is on the same property, yet many people believe that having student loan debt will prevent them from qualifying, or even save enough for a down payment. However, with conventional mortgage packages being available with as low as 3% down, and a variety of other low down payment loan packages available, that just is not the case anymore.  There are conventional and federally backed mortgage packages, as well as First Time Home-Buyer options that really make purchasing a home more obtainable than ever. When trying to obtain financing with student loan debt, the main obstacle to address is the buyer’s Debt to Income ratio (DTI).

DTI, Explained

Freddie Mac actually just released new guidelines easing the burden of student loan debt when factoring DTI.
DTI is calculated by the lender looking at the total monthly income for a borrower, then comparing it to the total monthly debt, and determining the Debt to Income ratio.  For Example, let’s say your housing expenses, including mortgage payments plus interest, home insurance, and property taxes are $1,000.  Your total other monthly debt including credit cards and student loan payments is $500. That makes the total monthly debt $1,500. Let’s say your income is $5,000 per month. $1,500 in monthly debt, divided by $5,000 in monthly income, equals .3, or a Debt to Income ratio of 30%. Different loan packages will have different maximum DTI thresholds, many of which are actually quite generous! Each program will calculate student loan monthly payments differently; Freddie Mac actually just released new guidelines easing the burden of student loan debt when factoring DTI.  There is a very positive trend of packages becoming available for borrowers with student loan debt, and there is no better time than NOW for millennials to start building their own WEALTH, one home at a time.

Helpful Tips & Tricks

Find a local mortgage broker that will be a great match for you…
Below are some tips to help ensure you will get approved for financing with student loan debt:
  • Create a budget (stick to it) and save as much as you can!
  • Stay CURRENT with monthly payments;
  • If you are currently behind, call your loan servicer to work on a repayment plan, and get caught up with your payments ASAP. Many servicers have income-based repayment plans, and other options that will make your monthly payment more comfortable;
  • Take your loan out of forbearance.  Most lenders will not complete a loan if you are currently in a forbearance state.  If the lender does decide to complete the loan, then it could make it much more difficult to qualify because the amount used to calculate DTI in forbearance is much greater;
  • If you are on a repayment plan, request your payment plan documentation from your servicer, as your lender will most likely need to see any documents on your repayment plan if it is different than that on your credit score;
  • Consider and explore options to consolidate your loans. If you have more than one student loan, then you should consult an expert, and possibly consolidate your loans to one monthly payment, and keep current with it;
  • If you need to get your DTI lower, consult a professional about possibly refinancing your loans
  • Find a home that is affordable, and don’t discount the idea of having a roommate to help with monthly bills;
  • If you can’t qualify for a mortgage, there are still options available for you, like owner financing, and rent to own options;
  • The best tip would be to find a local mortgage broker that will be a great match for you, talk about your different options, and then they will help get you on the fast track to home ownership!
Passionate, kind, and thoughtful, Ryan's honest and fair work ethic influence his business approach and the way he treats his clients. This St. Petersburg native's interest in and knowledge of the real estate market come naturally, and he knows the local communities, schools, restaurants (and more), like the back of his hand. Some of the many feathers in his cap include multi-million dollar real estate agent, a Certified Negotiation Expert, a Certified Home Marketing Specialist, a Certified Relocation Specialist, and a Regional Technology Specialist. Impressive, right?

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