Graduating from college is an important milestone for many American students. All the late-night study sessions chugging Red Bull©, countless office hours with your professor trying to understand the assignment due the next day, and sweaty-palmed presentations in front of a modest class of 200 people are worth it when the degree is in your hands.
However, for many Millennial and Gen Z students, the real issues begin after they walk across the stage and need to contend with thousands of dollars of student loan debt while still trying to make financial plans for the future.
If you have student loans and want to buy a new house, you might wonder how your debt affects your plans. Kerley Family Homes is here to help you make informed decisions, so your home-buying experience with us is stress-free!
“Roughly 60 percent of U.S. adults who have held student loan debt have put off making important financial decisions due to that debt . . . For Gen Z and millennial borrowers alone, that number rises to 70 percent.”
– Bankrate
When first-time homeowners get ready to buy a home, the questions can feel endless. This feeling can be incredibly nerve-racking when you tell your real estate agent that you already have student loan debt and are unsure what moves you can make in the market. But fear not! We have the answers to a few questions you may have.
Check out our blog for more answers to Popular First-Time Homebuyer Questions not listed below!
Q: Do I have to wait until I’ve paid off my student loans before I can buy my first home?
A: No, you don’t have to be student loan debt-free to buy a house. You can have student loans and a mortgage at the same time.
Q: Is qualifying for a home loan even possible with student loan debt?
A: Yes, you might qualify for multiple home loan programs, even with your debt-to-income ratio.
Your debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income. It helps mortgage lenders determine your approval odds and the likelihood of you being able to make your monthly payments.
The higher your DTI, the more debt you have compared to your income, which signals to lenders that you may struggle to cover your home loan debt and other expenses. The lower your DTI, the more lenders see you as a reliable borrower who can be trusted to pay them back.
Q: What DTI ratio should I aim for before buying a home?
A: According to Bankrate, ideally, you should aim for a DTI ratio of 36 percent or less, though some lenders may allow as high as 50 percent.
DTI ratio What lenders think
Below 36% Good: You potentially have the financial capacity to handle more debt.
36% to 49% OK: It’s unclear whether you could handle more debt.
Above 49% Poor: You likely can’t handle more debt.
Q: My DTI is above 50%. Should I wait to buy a house?
A: If your DTI ratio is too high, it may reduce your purchasing power and prevent you from buying the house you want at your desired price point. You can apply for a mortgage loan, but the likelihood of being approved is lower than average.
Q: What mortgage loan options are available for someone with student loan debt?
A: If you have student loans and want a mortgage, you might qualify for multiple home loan programs (see chart below). However, remember to speak with your pre-approval agent or real estate agent for more detailed information on what you may qualify for.
Fannie Mae HomeReady® loan: A low down payment option for lower-income borrowers.
Freddie Mac Home Possible® loan: This is a similar low downpayment option for lower-income borrowers, with a downpayment as low as 3%.
Freddie Mac HomeOne loan: This is another low down payment option for borrowers who need flexible financing, specifically for first-time homebuyers.
FHA loan: Insured by the Federal Housing Administration (FHA) and requires a down payment of just 3.5 percent
VA loan: For active-duty service members, veterans, and surviving spouses, with no down payment or mortgage insurance required
USDA loan: This loan is for borrowers in predetermined “rural” areas. You can check eligibility through the USDA website.
Q: If I switch to an income-driven repayment plan for my student loans, will that help me?
A: Yes, this can help lower your DTI ratio and increase your odds of getting approved for a mortgage. It is recommended to take this step at least one year before applying for a new home loan.
Q: Will adding a co-borrower to the loan help my approval odds?
A: Certainly! Additional income always helps with pre-qualification and approval. It’s also an easy way to reduce your DTI ratio. Make sure your co-borrower has little debt and a high credit score.
The National Association of Realtors (NAR) reported that 38% of first-time buyers had student loan debt, and the typical amount was $30,000.
The Bottom Line
Do not let student loan debt stop you from purchasing your next home before doing your research! There are many options out there for people with school debt who want to buy a house.
Our preferred lender, KFH Mortage, is more than ready to work with you to make homeownership a reality. Our goal is to make your home financing journey as simple and worry-free as possible by offering a variety of competitively priced loan programs to help you get into your new home.
It’s time to make moving to your new home another milestone this year! We have estate-sized single-family homes and spacious multi-story townhomes at various prices that are ideal for new homebuyers.
Contact an agent from Kerley Family Homes to find out which of our metro Atlanta communities is right for you and your family and how our current promotions can help you save. We can’t wait to welcome you home!
