Are you interested in buying a home, but worried that you may not be able to afford it because you also owe money on student loans? Student loan payments were deferred for most borrowers during the pandemic, however, they are scheduled to become due again in a few months. Although student loan debt does significantly impact a borrower’s finances, there is still a chance to be able to own your own home, even if your debt hasn’t been paid off yet. If you have current debt, and are interested in learning more about your home financing options in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, Foundation Mortgage can help. Read on to learn about buying a home with student loan debt.
How Do Student Loans Affect Buying a Home?
When you owe money on student loans, it can significantly affect your ability to buy a home. When applying for a mortgage, lenders will evaluate your credit history, and if you have made consistent student loan payments, your credit score will be higher, but on the other hand, if you had any late or missed payments, your credit score will decrease, which would impact your eligibility for a home loan. Additionally, owing money for student loans makes it more challenging to afford to make monthly mortgage payments and makes it more difficult to save money for a down payment and closing costs. Student loans also increase a borrower’s debt-to-income ratio, (DTI), which is another factor that determines what type of mortgage rate a person will be able to obtain.
Tips For Getting Mortgage Approval With Student Loan Debt
Even if you owe money on student loans, you still could become a homeowner. Some tips to help improve your chances for mortgage approval include:
- Lessen your student loan payments – You can try to reduce your student loan payment amount by refinancing or consolidating your loans and getting an income driven repayment plan to help boost your monthly income.
- Review your credit – You can try to improve your credit score before you apply for a mortgage by paying all bills on time, checking for any fraudulent charges and reviewing any credit errors, and by keeping older accounts that are paid off open in order to demonstrate a higher credit balance.
- Try to decrease your debt-to-income ratio – Qualifying for a mortgage with a higher DTI makes it more difficult to qualify for a mortgage, so it is important to try to pay off your current debts first to reduce the amount of monthly payments you have to make. A good step to take is to pay off accounts with the lowest balances first to reduce your amount of monthly financial obligations.
Although owing money for student loans can make it more challenging to buy a home, it is not impossible to become a homeowner. If you are interested in your financing options in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation.