Often times student loan debt can leave you feeling that purchasing your first home is a far-away dream. While student loans can make it more difficult to save for a down payment, the reality is that you can still become a homeowner. Here are some steps you can take that won’t make any drastic changes to your daily budget.
1. Lower your debt-to-income ratio
Debt-to-income (DTI) ratios are one of the biggest factors when it comes to your ability to get approval for a mortgage. Generally speaking, your DTI ratio should be 35% or lower in order to show that you are able to take on more debt. If your DTI ratio is higher than this, you will want to take some of the following steps:
Pay down as much debt as you can: Make larger payments towards your current debt when you have extra funds.
Increase your income: Ask for a raise from your current employer, take on part-time work, or a freelance job that could supplement your income.
Refinance your student loans: Consolidating your student loans or refinancing them at a lower interest rate could help you lower your monthly payments and reduce the overall cost of the loans.
Look for more affordable housing : Look into temporarily moving into a cheaper home/ living situation. Lowering your monthly payment will improve your DTI ratio.
2. Improve your credit score
A quality credit score is of significance for lenders. As long as you are making your student loan payments on time, your credit score likely isn’t negatively impacted by your loans. Here are some other things you can do to improve your credit score
Lower your credit utilization ratio: This measures how much of your total available credit you’re using. Since using less is generally better for your credit score, the easiest way to keep your credit utilization ratio in a good place (below 30%) is to pay off outstanding debt.
Keep old credit card accounts open: The longer your credit history is, the better your score. So, if you have old accounts in good standing, don’t close them!
Avoid opening new lines of credit: If you’re preparing to buy a home, don’t apply for new credit cards. Doing so requires a hard credit inquiry, which can hurt your score.
3. Look into down payment assistance
Student loans can certainly impede your ability to save for a down payment, luckily there are programs and grants that may be available to you! We suggest doing some research and connecting with your mortgage broker for information on down payment and closing cost assistance programs to first-time homebuyers. They could be a huge help.
4. Consider a more flexible loan option
Along with down payment assistance, there are mortgage options that can cater to those with student debt. Being a first-time homebuyer isn’t required for the following loan programs:
FHA loans: Insured by the Federal Housing Administration, these loans offer lower credit and DTI ratio requirements, and have a minimum down payment requirement of only 3.5%.
VA loans: Specifically for military members, veterans, and surviving spouses, VA loans don’t require a down payment or private mortgage insurance. The mortgage is guaranteed through the Department of Veterans Affairs.
USDA loans: Eligible in rural areas of the country, these loans have a no down payment option and flexible credit requirements.
Great news! Each of these loan options are offered by Radiant Financial Group!
Think you might be ready to tackle your student loan debt and buy your first home? Start the mortgage pre-approval process today by reaching out to me through my website!