How You Can Make Buying a House with Student Loan Debt Easier
As an aspiring homeowner, you may be hesitant to embark on buying a house due to the remaining balance on your student loan. While an outstanding loan may seem like a setback, it is possible to work around the situation by properly managing some of your other financial circumstances.
A lending institution is far more likely to grant you a loan if your DTI (debt to income) ratio falls within a certain percentage and if you come to the table with a significant down payment. Also, you can increase your chances of success by improving your credit score, increasing your monthly income and finding a property that you can reasonably afford. If you are interested in new construction homes near Lehi Utah, McArthur Homes is currently building a community of gorgeous multi-level townhomes in a real estate market that is ready to welcome you.
Know Your DTI Ratio
Your debt to income ratio is determined by adding up all of the monthly payments you make regularly such as rent or mortgage, homeowners or renters insurance, alimony and/or child support as well as payments on personal loans, auto loans and student loans. Then, you divide this number by your total monthly household income before taxes. This is an important number a lending institution must factor into your application for a loan. The figure you get is your DTI ratio, and ideally, this should be somewhere between 25% and 50% for a bank to consider granting you a loan. The closer to 25% your DTI is, the better.
Save Your Money
With a fairly low DTI ratio, your chances of buying a home when you have a student loan increase. Next, you will want to make sure you save up a sizable amount for a down payment. Ideally, 20% of the home’s list price is enough to get any lender interested in granting you a loan. The higher of a down payment you can make, the less of a lending risk you are in the eyes of the bank. Plus, a substantial down payment allows you to skip having to buy private mortgage insurance (PMI) which protects the lender if you default on the loan.
Pay Off Some Debts
Your credit score is a crucial part of whether or not a financial institution decides to offer you a loan. Decreasing your overall debt can help increase your credit score. While you may not be able to pay off an entire student loan, you can make a bit of headway by catching up on all of your regular credit card payments. If you have a manageable balance on a card, paying down the majority of it can lower your credit utilization – which simply means you are using just a small amount of your maximum line of credit. Even if you don’t use a card very often, it is important to keep one if not multiple credit card accounts open to show that you can manage different kinds of debt.
Try to Make More Money
You can improve your DTI and your credit score by increasing your income. If you have been working at your current job for several years, perhaps it is time to ask for a raise. Also, you might consider volunteering to work more hours – either at night or on the weekends. If this is not an option at your full-time job, you can pick up a part-time job or start something on the side, such as delivering food and groceries, driving for a rideshare company, bartending, teaching online classes, reselling items online, blogging or rent your vehicle to a car-sharing service. These are all options to make a few extra dollars while you save up to buy your new home.
Choose a House Within Your Budget
Shopping for a home that is within your financial means is an important part of qualifying for a loan when you have student debt. In your case, a townhome may be the perfect solution – especially if you are shopping for new construction homes near Lehi, Utah. Rockwell Ranch Townhomes is currently offering gorgeous, newly-built new homes which are ideal for first-time home buyers.
If you’re looking to buy a new home, even with student loan debt, and want to take advantage of current market conditions, contact McArthur Homes today. With a variety of floor plans to choose from and prices that will fit any budget, now is an excellent time to buy a new construction home in Utah. McArthur Homes has teamed up with several excellent Utah lenders to simplify home loans for our buyers. Our team would be happy to help you find your dream home in one of our beautiful communities.
This post was written by Paige Giles