Buying a home can seem intimidating, especially today when more and more Americans are saddled with debt. Did you know that according to Forbes, there are more than 44 million people who have student loan debt? This can make your home buying more difficult, especially for younger homebuyers. Let’s take a look at six ways you can increase your chances of purchasing a home despite having and paying on student loans.
Make Sure Every Payment is on Time
Your payment history makes up a large percentage of your credit score. Making payments on time shows that you are financially responsible and that probability is high that you will make good on your promise to pay back the money borrowed for your home. When it comes to payments, make sure you don’t skip payments, and that all payments are on time. If you are having trouble making a payment on time, speak with the company whom you owe before you have a delinquent account. Often, your creditors will work with you.
Apply for Downpayment Assistance
For many who have student loans, obtaining the required down payment can be difficult. The good news is that there are down payment assistance programs available. Let’s take a look at three of the most common:
- FHA Loans – loans obtained through the Federal Housing Authority. This type of loan requires a lower down payment and may approve those who have lower credit scores as compared to the requirements for a conventional loan.
- USDA Loans – Loans that may be available for individuals looking to purchase a rural or suburban home. USDA loans require zero down payment.
- VA Loans – Most who have served in the military are eligible for VA loans. Like the USDA loan, a VA loan helps veterans purchase homes down payment free.
Lower Debt-to-Income Ratio
Lenders will take into consideration your debt-to-income ratio. This is how much money you make versus how much money you have going out. Lenders want to ascertain that you have enough left over after expenses to pay a mortgage consistently. You can either earn additional income, pay off existing debt, or do a combination of both to lower your debt-to-income ratio.
Refinance Student Loans
It is never a bad idea to look into refinancing your student loans. Doing so can lower the interest rate which can help lower your payment and even give you extra money to put towards the principal.
Minimize Use of Credit Cards
Just because you have a credit card doesn’t mean you should have it maxed out. Lenders prefer to see borrowers who keep the use of credit cards down to at least one-third of the available balance. This is another area that shows financial responsibility. It also shows lenders that you are able to live within your means.
Focus on Your Credit Score
Credit scores are important when it comes to lenders deciding how much of a risk you are to take on. One of the most commonly used credit scores is FICO. The range is 350-800 with anything above a 750 considered an excellent credit score and anything below 600 considered poor credit. The higher your score is, the better. Your credit score will also play a part in what kind of an interest rate for which you are maybe approved.
The Local Mortgage Industry Leaders
With over 25 years of experience helping future homebuyers purchase their next home, our team is dedicated to helping you find your dream home! Let us help you navigate the complex lending process! Give us a call today!