February 14, 2022
If you’re paying those dreaded student loan bills, it might seem like purchasing your own home couldn’t possibly be a short-term goal. After all, carrying a good chunk of debt raises your debt-to income ratio (more on that shortly) and can make it more difficult to save for a down payment. Even though it presents some challenges, the reality is, you could still become a homeowner with student debt. These tips could help you get keys of your own without having to make huge changes to your spending.
1. Lower your debt-to-income ratio
First off, your debt-to-income (DTI) ratio is one of the biggest factors in your ability to get approved for a mortgage. As a percentage it shows how much of your monthly income goes toward debt payment. Generally, a DTI ratio of 35% or lower is considered “good” and means you could likely afford additionally debt since you have money remaining after paying recurring bills.
Here are few ways to improve your DTI ratio:
- Pay down as much debt as you can: When you can, pay more toward things like student loan debt, credit card debt, and other balances.
- Increase your income: Consider asking for a raise if you’ve been at your job for a while. You can also find a second gig or freelance opportunities to help supplement your income.
- Refinance your student loans: Refinancing or consolidating your student debt would lower your interest rate and, in effect, lower your monthly loan payment.
- Look for more affordable housing: A cheaper home would lower your monthly rent payment and improve your DTI ratio.
2. Improve your credit score
Like your DTI ratio, the quality of your credit score is significant for lenders. Fortunately, as long as you make your student loan payments on time, your credit score likely won’t be negatively impacted by your loans. Along with always making timely loan payments, you can also:
- 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 ration 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 for 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.
If you still need to establish a credit history of your own, check out this blog.
3. Look into down payment assistance
Student loans can certainly impede your ability to save for a down payment, but did you know helpful programs and grants may be available to you? For instance, the State of New York Mortgage Agency (SONYMA) offers a Down Payment Assistant Loan for eligible borrowers. We suggest doing some research and seeing if your state offers 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 ration requirements, and have a minimum down payment requirement of only 3.5%. The borrower must pay for private mortgage insurance.
- 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.
And best of all? Each of these loan options are offered by Premium Mortgage Corporation.
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 one of our Loan Officers.