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Buying a Home When you Have Student Loan Debt

Buying a Home When you Have Student Loan Debt

Read time 3 minutes

When thinking about buying a home, many people face one major obstacle. Jessica Santana, one of our Affinity Loan Officers, sees it all the time: “Often student loans are the significant hurdle.” Student loan debt may feel like one of the biggest barriers to homeownership, but it doesn’t always have to be. That’s why Jessica would like to share with us a few tips that can make securing a home loan seem more realistic, even with student loans looming over your finances.

Start saving now!

Regardless of whether you’re facing significant student debt, or there are only a few payments left to make, it is always important to remember to set aside money in your budget for savings, in addition to paying down your loans. “Probably the best thing that they can do is save some money,” says Jessica, who highlights the benefits of having money set aside further down the road in the home buying process. “When you do decide to buy a home, you’ll want to have two months’ worth of that mortgage payment saved. I often recommend six months.” Even if you’re working with a down-payment assistance program, having some money set aside will assure that you are prepared for any unexpected home maintenance costs.

Think about your student loan repayment plan.

Saving money is important, but paying off your student loans sooner rather than later is equally important. “When we look at student loans as a lender, we factor student loan monthly payments into your debt-to-income ratio” says Jessica. This means that the sooner you can pay off those loans, the easier it will be to afford the home you want. One option that may help to reduce student loan debt is enrolling in an income-based repayment plan. “This plan really helps.” Jessica explains, “Your student loan servicer will evaluate how much your monthly payment will be each year based on your income. As your income increases, so will that monthly payment.” By sending additional payments towards your loan balance, you may be able to qualify for the home you want sooner.

Student Loan Debt

How do lenders look at deferred student loan payments?

It may be that you’re not yet making payments on your student loans and are considering buying a home, especially if you or your partner are currently still in school. In these cases, Jessica says “The concern would often be the impact of these student loans when they become due.” Jessica says that lenders are obligated to look at student loans as if there are payments currently being made, even if that is not actually the case. “They are deferred loans, but I have to consider that they will become due at some point in the future. In fact, the potential borrower should also be including those loans in their budget before they become due.” If you do not know how much the monthly payments will be for those deferred loans, you can call your servicer and request a letter showing your future monthly payment.

The time to start thinking about the homebuying process is now.

It’s never too early to start thinking about buying a home. There are many steps involved in qualifying for a home loan, but by becoming informed and beginning the steps toward homeownership before applying for a home loan, you can significantly simplify the process. “It is never too early to start beginning your plans,” Says Jessica. If you’re interested in having an Affinity Lending professional sit down with you to learn about the home buying process, our team is always available to meet with you.

 

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