Mortgage interest rates remain near historic lows, creating a tempting opportunity to enter the market as a first-time homebuyer. However, student loan debt could present a roadblock to purchasing a home.
According to the average borrower, the average loan debt is $33,654 in student debt, according to data compiled by Credible. The average - repayment plan comes to $393 per month, which could easily put a pinch in your ability to afford mortgages.
President Joe Biden's plan for debt forgiveness could offer some relief for potential homebuyers, but it may be months away and may not cover private student loans. In the meantime, here's a closer look at how student loan debt affects your ability to buy a home and what you can do about it.
If you want to see which options are available for a student loan, check out Credible to speak to an expert loan expert.
This can be challenging to save for a down payment and keep it that way.
A bigger down payment can mean less you have to finance and potentially lower monthly payments on a mortgage, creating more room in your personal finances. According to a 2020 report from the National Association of Realtors, about 26% of first time homebuyers cited saving a down payment as the most difficult part of the home-building process.
Student loan debt could cost you the ability to buy a home in one of two ways: First, if you are only able to save a smaller down payment, the Student Loan payments may limit your options when it comes to properties and mortgages. Second, you could end up having to delay your home purchase if you want to save a larger down payment in the future.
Refinance student loans may help to lower your monthly payments while saving money on interest, leaving you with more cash in your budget to put towards a down payment. If you are interested in the benefits of refinancing, you can visit Credible to see multiple loan rates from different lenders in one place.
Your ratio is the percentage of your income that goes to debt repayment each month. This number is important, since most lenders can cap the maximum DTI allowed for qualified mortgages at 43%, according to the Consumer Financial Protection Bureau.
If your monthly payments to your home loans are over this threshold, it is possible that you will be denied a mortgage. It is also important to note that lenders don't have to adhere strictly to the 43% DTI rule; they can set the maximum acceptable debt-to-income ratio lower.
Refinancing these loans could help to improve the monthly payments and reduce your DTI cost. You can use an online student loan refinancing calculator to estimate what your new monthly payments will be. With Credible, you can get refinanced for a student loan without affecting your credit score.
However, think about refinancing federal student loans carefully. Under the Biden administration's loan forgiveness plan, only federal student debt would be eligible. Refinancing private loans can cause you to miss out on this benefit if you don't use federal loans regularly.
From your DTI profile, home mortgage lenders also look at your credit history in deciding whether or not to approve you for a mortgage downswing. Late or missed payments or a student loan default could result in a lower credit score. While there are homebuying options for bad credit, they can come with higher interest rates, making mortgage buying more expensive in the longer term.
Setting up automatic payments can help prevent unauthorized payments from damaging your credit score. Your lender may offer an interest rate discount for autopay, which could help you save money on interest over the loan term. This option can be offered for both private student loans and federal loans.
If you're struggling to pay student debt, you can reach out to your loan servicers to discuss options. Federal loan borrowers currently have their loans in forbearance until Sept. 30, 2021 but you may need to continue this with an additional forbearance or deferment once that window closed.
With private student loans, it's up to your lender to decide whether or not to offer any type of foreward or deferment in case of financial hardship. If the loan servicers don't allow loans in forbearance or deferments with private student loans, then refinance your loans elsewhere could help make payments more affordable.
Student loan can be a barrier to buying a home but it's still possible to realize your goal of buying a dream home. Accelerating student debt repayment can help and it's one reason borrowers consider refinancing their loans. You can visit Credible to view various loan refinance rates from multiple lenders today.
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