If you have student loan debt, you are certainly not alone. In fact, as of 2022, there are an estimated 44.7 million Americans who have student loan debt, according to Education Data.org.
Sure, student loan debt can be a roadblock on the path to homeownership. It can make saving for a down payment more difficult. Your student loans may also increase your debt-to-income ratio, which can influence your ability to qualify for a mortgage along with the rate you’re able to get. Also, missing a student loan payment can lower your credit score, an important factor in determining your mortgage approval odds. Defaulting on your student loans can preclude you from qualifying for certain mortgage programs. On the other hand, paying your student loan on time can be a great way to bolster your credit score.
While having student loans can influence your mortgage in several ways, it is not a deal breaker. It’s important to remember that student loans are no different than any other type of debt you may have. Lenders aren’t deterred by this specific debt, instead, they are looking at your financial situation in its entirety. If you’re considering homeownership you may want to look for ways to reduce your DTI ratio. One way to do this may be by lowering your student loan payments. This can be done in several ways. The first is by applying for an income-driven repayment plan which adjusts your payments based on your current income and family size. Just be sure that this option will reduce your payments and not increase them. It may also require larger payments later in the loan.
If you have private student loans, you may also want to consider refinancing your student loans which could qualify you for a lower interest rate. While your term may be extended, this could result in lower monthly payments and therefore freeing up more money each month that could go towards a mortgage payment. Talk to your student loan servicer to make sure you’re comfortable with all the terms of any repayment plan or refinancing options before you make the change.
When getting started with the homeownership process, be sure to explore all your mortgage options. There are multiple types of mortgages that will allow you to buy a home with little down including VA, Conventional First Time Homebuyer programs, and FHA loans. Each type of program has its own unique way to calculate an estimated monthly student loan payment when the loan is currently in deferment. An experienced mortgage loan originator can help you find the right mortgage to fit your unique needs.
The Biden administration recently announced a program that would reduce or wipe away $10,000 of student loan debt for individuals who make less than $125,000 annually and up to $20,000 for borrowers who received Pell Grants. This news can have a huge impact on the financial lives of millions of Americans, including the ability to purchase a home.
This is because erasing $10,000 to $20,000 of student loan debt could lower an individual’s DTI, the figure that shows lenders how much of your income is tied to debt payments. Lowering your DTI could mean the difference between being approved or denied a mortgage loan. In addition, extra money that would have otherwise gone towards monthly student debt can now be used to save for a down payment and other costs associated with buying a home.
If you’re curious about what lowering or eliminating your student loan debt means for your dreams of homeownership, contact a Silverton Mortgage loan originator today. One of our team members would be happy to look at your unique financial circumstances and discuss all your mortgage options.
*Silverton Mortgage is authorized to originate FHA, VA, and USDA loans. But it is not an agent of or affiliated with, the U.S. Government. All trademarks are property of their respective owners. Vanderbilt Mortgage and Finance, Inc., dba Silverton Mortgage, 1201 Peachtree St NE, Ste 2050, Atlanta, GA 30361, 404-815-0291, NMLS #1561, (http://www.nmlsconsumeraccess.org/), AZ Lic. #BK-0902616, Licensed by the Department of Financial Protection and Innovation under the California Residential Mortgage Lending Act license, Licensed by the N.J. Department of Banking and Insurance, Licensed by PA Dept. of Banking, Rhode Island Licensed Lender. Licensing information: https://silvertonmortgage.com/licensing/. All information is believed accurate and is subject to change without notice. CA Resident Privacy Policy | Clayton Homes and Legal and Privacy at Vanderbilt Mortgage and Finance (vmf.com)
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