Many millennials and recent college grads are ready to take the next step in life and buy a home. However, they’re coming across the issue of how to qualify for a mortgage when they’re buried under student loan debt. Not to mention many lenders determine who qualifies for a mortgage based solely on student loan debt.
When lenders decide whether or not you qualify for a mortgage they often look into your current debt that could have a huge impact on your ability to make your monthly payments. This includes credit cards, auto loans, medical/personal debt, and of course, student loans.
If you’re looking to qualify for a mortgage loan with student loan debt then there are few factors that will increase your chances of getting the loan. In this blog, we will discuss the main influencers that will help you qualify for a mortgage loan so you can take that next huge step in your life.
Qualify for a Mortgage with Student Loan Debt
There are four major factors that could help you qualify for a mortgage. These factors will not only affect your chances of getting approved, but they can also help you pay off your debt faster overtime.
Raise Your Credit Score
The number one item that lenders look at when they decided whether or not you qualify for a loan is your credit score. You should know your credit score and ensure it meets the requirements for mortgage approval. Generally, lenders look for a score of 650 or above.
If you need to raise your credit score the best way to do so would be to pay all of your bills on time, pay off any current credit card balances, use your credit card for purchases you know you can pay off, limit your spending on large purchases, and check your credit score reports for accuracy.
Lower Your DTI
DTI refers to your debt-to-Income ratio. This could be a huge influencer holding you back from getting a mortgage. Your DTI measures the amount of debt you owe in relation to your monthly income. For example, if your income is roughly $4,000 per month and $1,000 of that goes towards paying off your debt then your DTI is 25 percent.
So rather than the amount of student loan debt you have, mortgage lenders are more interested in how much you pay back each month. A DTI of 43 percent is the most a borrower should have when looking to qualify for a mortgage.
You can meet with a lender prior to applying for a loan to seek pre-approval. This can help you get a rough estimate of your down payment, costs, and requirements for the loan. Then after you get pre-approved you can better determine which homes you can afford. It may also make you more appealing to a seller if you’re already pre-approved for a mortgage.
Mortgage lenders look into your employment history, credit score, credit history, income, and assets. That’s why you should always do you research and ensure you’re a solid candidate for a loan. It also helps to collect all of the paperwork required for the process ahead of time to make things easier down the road.
Look Into Down Payment Assistance
There are many programs out there to help you afford the down payment on your home. If you’re interested in a down payment assistance program then speak with an experienced mortgage broker. Then you can find out if you qualify for a state, federal, or local program depending on what’s right for you.
A few loans and programs to also consider include the state and local programs, which can help your sweat equity (value-enhancing improvements made by the homeowner) if you’re looking to build a home. The FHA loan, which can help you lower your down payment to as low as 3.5 percent. The USDA loan, which could mean you don’t have to pay any down payment at all. Lastly, there’s the VA loan, which is for veterans that have served in the military.
Speak with a Trusted Professional
Trusted House Finance is a refinancing company that offers advice and options to help you save money and qualify for a mortgage. Our staff is made up of experienced professionals that know the ins and outs of the mortgage industry. If you’re interested in better understanding how to qualify for a mortgage with student loan debt or you just have a few questions, contact us today.