Top 9 Tips to Buying a Home Despite Having a Student Loan Debt

EPF Last Update: May 21, 2020

Every American want’s to buy a house. However, it may be a hurdle for those with outstanding student loan debt.

However 83% of those having student loan debt count it among the factors making it hard for them to acquire a house. Whether fresh from college or not, you must not be carried into thinking that you cannot own a house because of your loan debt. Elite Personal Finance has some insightful tips to help you become a homeowner despite your loan debt, here’s how.

Manage Your Debt-to-Income Ratio

Debt-to-income ratio commonly known as the DTI ratio is determined by calculating your monthly debt payments as a percentage of your monthly income. The higher the debt-to-income ratio, the riskier your loan is considered. Meaning, a DTI ratio above 50% gives higher chances of one’s loan denial. But having a debt-to-income ratio below 40% means the prospects for a loan are very high. To lower your debt-to-income ratio, you need to have a better income, and you should clear your debt on time.

Therefore, when applying for a loan, most lenders focus on your DTI ratio before approving your loan request. The rate helps the lenders determine whether you have enough money for your day-to-day living and also to cover your debt.

Prioritize Your Payments

It’s imperative to pay attention to your payments regularly since lenders mostly consider responsible borrowers. Surprisingly, if you watch on your billing statement on a monthly basis, your minimum payment can change from one month to another; sometimes lower, sometimes higher. However, if you have multiple loans and you can’t make payments either on one or more of them, the best thing is to plan earlier. For instance; if you can’t afford your car payments, you can prefer to sell the car and do without or even purchase a less expensive but comfortable vehicle. But when you fail to pay, you may default on your loan. Prioritizing your payments will make you buy a home.

Merge Your Credit Card Debt with a Personal Loan

Having multiple loans such as credit cards and car loans is not a bad idea but paying for them, each with a separate interest may result in a big problem. To lower the debt burden and clear the balance faster, you need to consolidate all the credit balances with a personal loan. You can take out a personal loan from a credit union, a bank, or any online lender such as CommonBond. Remember, a personal loan can improve your credit score. Therefore, with a single payment, you will realize a lower interest rate (than your credit card debt) and a lower required payment. After consolidating all your debts, you will have a chance to buy a home.

Refinance Your Student Loans

Individuals with multiple balances and with problems on paying off their student debt on time need to refinance their student loan. To refinance student loans means to apply for a new loan from the private bank to clear away your debts. For your offer to get approved, the lender has to review your income and credit score (steady job and excellent credit). In case you qualify for a new loan, you will get a lower interest rate.

In general, refinancing enables students to consolidate their existing private and federal student loans into one new loan, with payments into a lower interest rate. If you follow this tip, you’ll be in a position to buy your dream home.

Check Your Credit Score

Most lenders before giving out a loan, have to check your credit score and credit history. The whole credit score ranges between 350 and 800; where among the frequently used credit scores is FICO.

Besides, when you have a higher credit score, the more likely you are to qualify for a loan and a credit card at the favorable terms. However, the lower the credit score, the higher the interest to pay, and the chances of loan approval are low. To better your credit score, you need to establish a track record of using boosting tools such as Experian. You also need to pay off your bills on time and clearing all your debt. Regular checking your credit score, you can buy a house despite student loan debt.

Purchase a Lower Priced House

As it’s said, make your plans real. If one of your New Year plans is to own a home, it’s not too late. Reach for that goal now! But you need to look for a home you can financially afford. Meaning, a lower priced house has lower closing costs, lower mortgage payments, and low down payment.

Also, spending little cash to buy a house, you may have the money to help your kids through college life, have extra cash for emergencies, and afford a nice family vacation, among other benefits. Is that not interesting?

Look for Down Payment Assistance Programs

Down payment assistance programs that are approved by lenders come in many forms. Among the vast majority include; State housing agencies, Community grants, Federal Housing Authority (FHA), and the Federal Housing Administration. Many states offer these down payments assistance despite having student loan debt. So, you stand a chance to buy a home!

Keep Credit Card Utilization Rate Lower

Credit card utilization rate also known as credit utilization ratio is calculated by dividing the balance on your monthly statement by your credit limit (from your credit card account). Ways to improve your credit utilization rate and your credit include; lowering your spending, setting up an automatic balance alert, clear your debt on time, pay down your credit card debt using a personal loan, and never close cards (unused).

That’s why insurers evaluate your credit spending or your card utilization as a percentage of your credit limit. The point is one should keep the credit card utilization less than 30%, to boost the credit. Remember, a high utilization rate could indicate that you’ll have problems paying your bills on time among the other benefits. Being able to lower your credit utilization despite having a student loan, you qualify for a home.

Communicate With Lenders

In case you have troubles in clearing your student loan debt, call your lender and explain your problems. Who knows his luck! They may change your payment due date or even consider you skip payments for a couple of months. Also, you can convince your lender that you are unable to make payments, so reduce your balance.

In conclusion, for your plan to be successful, for instance, buying a home, you need a firm grasp on your income and spending. Remember, you cannot make smart decisions until you know where your money goes. Therefore, track every penny you spend and save it for your future tomorrow.

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