Student loans can feel like a weight keeping you back from your financial dreams, but there are creative ways to qualify for a mortgage, even with debt.
Do you want to buy a home but are worried about taking on a mortgage while you still have student loans? Maybe you feel confident you can afford a mortgage, but your outstanding debt is making it hard to qualify for your dream home? Whatever your situation is, know that you’re not alone. I’ve had a lot of younger buyers come to me asking what they can do to mitigate the impact of their student debt and get into a house. While this situation can be tough to deal with, you still have options. Here are three things you can do buy a home even if you have student loans:
1. Work with a lender who knows what they’re doing. Not every lender is created equal, and many professionals just don’t know how to help you navigate your student loan debt. On the other hand, a good lender can create a personalized plan to lower your debt, increase your credit score, and qualify for the financing you need. For example, there are creative ways to manipulate your debt-to-income ratio to free up more debt utilization for a mortgage.
“A good lender can help you create a plan to lower debt.”
2. Enroll in an income-driven repayment plan. In case you don’t know, income-driven repayment plans are programs designed to help you lower your mortgage payments based on your income and family size. These are a fantastic option if you have the cash flow to afford a mortgage, but your student loans are limiting what you can qualify for. For some families, your student loan payments can be as low as zero dollars a month, so make sure you check with your lender what your situation is before committing to a mortgage.
3. Make sure you use Freddie Mac. In case you don’t know, Freddie Mac and Fannie Mae are the two most common mortgage providers in the U.S., and while they are largely similar, there are key differences between them. For example, Freddie Mac only counts 0.5% of your outstanding student debt towards your debt-to-income ratio, while Fannie Mae counts 1%. This is a significant difference that could be the difference between you being able to qualify for your dream home or not, so make sure you work with a lender who understands the nuances of these two entities.
Don’t let debt hold you back from building equity. Homeownership is one of the best ways to achieve long-term wealth in the U.S., and there’s no reason why student loans should hold you back from this dream. Call or email me if you’d like to discuss your mortgage options; I look forward to hearing from you!
