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If you’ve recently graduated from college and you’ve
racked up student loans, you’re in good company.
Recent reports have shown that nearly 44 million
borrowers owe a staggering $1.48 trillion in student
loan debt. For people ages 20 to 30 years old, the
average monthly student loan payment is $351.
How much money you make relative to how much money
you owe, is referred to as your debt-to-income ratio, and is
a main consideration when seeking a mortgage.
There is a bright side to your student loan balance
compared to other types of debt. Student loans are
generally viewed by credit agencies as installment
loans, like home mortgages and loans for automobiles.
Credit card debt has a bigger impact on your credit
score because it’s considered revolving debt – meaning
your balance can go up and down over time. Here’s an
example: carrying $25,000 in credit card debt is likely
worse for your credit score (and your ability to get a
home loan) than that same amount of student loan debt.
How Can You Get a Home If You Have Student Loan Debt?
If student loan debt is part of your financial equation,
these tips could help you get a home:
Pay your bills on time. Just like any financial obligation,
making your student loan payments on time and in
full makes the biggest impact on your credit (and your
ability to get a mortgage). If you pay on time, it’s only
going to help maintain or improve your credit score.
Modify the terms of your loan or loans. Another option to
reduce your monthly student loan payment is to opt for a
graduated repayment plan – meaning the payment starts
low then rises every two years. The lower payment helps
improve your debt-to-income ratio, which in turn makes it
easier to qualify for a mortgage. This generally works well
for younger workers who will likely have rising income
as they become more experienced in their careers.
Not all loan programs will consider a reduced payment
when qualifying an applicant. Your FirstBank
Mortgage Banker can assist you to select the most
appropriate loan program for your situation.
Consider consolidation. If you have multiple student loans
at various amounts and different rates of interest, you may
be able to lump your balances together – hopefully at
a lower interest rate – while potentially extending the
payment term over a longer period of time.
Thankfully, there are several options for first-time
home buyers with student loan debt, including those
with 100 percent financing and/or low down-payment
requirements. Examples include Federal Housing
Authority (FHA) loans that allow for a slightly higher
debt-to-income ratio (up to 43 percent) and can have a
lower minimum credit score. And if you or your spouse
has served in the military, the VA Loan Guaranty
program is available to you as part of the G.I. Bill.