You decided to go to college and get your undergraduate degree—may be even your graduate degree. Afterward, you got a job and gained steady employment with a paycheck. A generation or two ago, the next step would likely have been to settle down and buy your first home.
But now? With the rise of student debt homeownership is not a straightforward path.
However, just because the path to homeownership is not straight, it doesn’t mean it’s not achievable. There just might be a few more boulders to climb and rivers to cross.
Your Credit Score
Your student loans impact your credit score and your creditworthiness. When lenders look at your application, they take into account a number of factors including the total amount of debt you have compared to your income. If you have a lot of student loan debt, your debt-to-income ratio may be too high, and you may not be able to get a student debt mortgage.
To see how your loans are affecting your credit score, pull a copy of your credit report. You may also want to talk with a loan advisor about your situation. They can let you know if your chances of getting approved are likely to increase if you pay down some of your student loans before applying.
If your credit worthiness is fine, you need to think about your budget. Before agreeing to take out a mortgage, make sure that you can afford an extra monthly payment in addition to handling your student loans. Additionally, remember to take into account the cost of home repairs.
When you buy your own home, you can no longer just call your landlord if the heating stops working, the roof needs a repair, or something else happens. Instead, you need to cover these costs on your own. As a general rule of thumb, you should set aside 1% to 3% of the home’s purchase price every year so you have it on hand for repairs or other issues. There are online budgeting tools that exist to help you manage your finances.
Student Loan Cash-Out Refinance
Fannie Mae’s program allows participants to use their existing home equity to pay off one or more student loans, potentially reducing overall monthly debt payments.
The upshot of the offer is that the loan-level price adjustment, which is the risk-based fee assessed to mortgage borrowers on cash-out refinances (typically in the form of a higher interest rate), will be waived for those using the money to pay off student loans.
In order to qualify for this perk, at least one student loan must be paid off by the refinance. And the money from the refinance must be paid directly to the student loan servicer at closing.
Student Loan Adjustments
As you consider taking out a mortgage while still in student debt, you may want to consider doing a student loan adjustment. To keep your budget under control, you may want to contact your student loan administrator and ask for reduced interest rates, lower monthly payments, or even forgiveness on some of the balance.
Ready to learn more? Contactst Bright Path Brilliant Mortgage Solutions, we offer a variety of different mortgages. We can help advise on the best mortgage for you if you have student loan debt. We can help you find the right fit for your needs.