Those riddled with student debt may feel their chances of buying their dream home, or even a home can seem like a distant fantasy. With a proper plan in place and the determination to save money, buying a home with student debt is more than possible. Here are a few ways to increase your chances.
The higher your score, the more willing the banks are to give you a loan. Typically, a good credit score is about 690 or higher on the 300-850 scale. Don’t know how to check your score? Try Credit Karma’s free credit score check.
Maybe you do know your score and you’re not too thrilled with the number. Get your score up by paying your credit card off on time every month. Paying it off completely not an option? As long as you’re paying a decent portion of your debt on time month to month, the banks will look at you as a responsible borrower.
A lender will calculate your debt-to-income ratio to assess your ability to make monthly payments on a mortgage. According to Miranda Marquit, a majority lenders follow the “28/36 qualifying ratio.” This means that you should spend no more than 28% of your gross monthly income on total housing expenses, and no more than 36% on total debt service (including the new mortgage payment). If your DTI is high, there are a few steps you can take to reduce it.
Getting pre-approved lets you know how large of a loan you’ll likely qualify for, which can help guide your home search and keep you on budget. A pre-approval also shows sellers you’re serious about buying a home and can work towards your advantage when competing with other buyers.
When applying for pre-approval, you’ll need to:
The general rule of thumb for a down payment may be 20%, but there are a ton of loans and programs that offer low interest rates, and several require no down payment at all. This can be hugely beneficial if you’re dealing with a heavy student loan burden.
Check out this list of 10 loans and programs from Bankrate.com
While some may not love the idea of this, but a cosigner can help in many ways. A cosigner can help you meet lender requirements for credit and income by providing an additional source of income that is available to help make loan payments. You will ideally, pay off the loan yourself, but the lender wants to be risk free and a cosigner can give them that security.