How to Buy a House with Student Loan Debt

If you want to buy a house but have student loan debt, you may be wondering if it’s possible.

This article will look at how your eligibility for a mortgage loan can be affected by student loan debt and provide tips to help you qualify.

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How Student Loans Affect Getting a Mortgage

Student loans affect your debt-to-income (DTI) ratio, which is the amount of your gross monthly income that goes towards your monthly debt obligations such as minimum credit card payments, auto loans, and student loan payments.

Front-end DTI ratio – Your front-end ratio is your debt-to-income before factoring in your estimated monthly mortgage payments.

Back-end DTI ratio – Your back-end ratio is your debt-to-income after factoring in your estimated monthly mortgage payments.

For example, if your gross pre-tax income is $5,000 per month and your monthly student loan payments are $300, a $300 monthly auto loan payment and credit card payments total $400 per month. Your total monthly debt payments are $1,000. Your front-DTI ratio is 20%.

DTI Ratio Needed for a Mortgage

Mortgage lenders typically require a front-end DTI ratio of 28% and a back-end DTI ratio of 43% to 50% to qualify for a mortgage. The maximum DTI required depends on the type of mortgage you get and your credit rating. Government home loans such as FHA loans and USDA loans allow for higher DTI ratios up to 50%. Conventional loans allow for a maximum 43% DTI ratio.

Maximum DTI Ratio Requirements by Loan Type

  • FHA Loans – 50%
  • VA Loans – 50%
  • USDA Loans – 50%
  • Conventional Loans – 43%
  • Home Possible / HomeReady Loans – 50%

Improve Your Debt-to-Income Ratio

If you have student loan debt and a high DTI ratio, you should improve it to increase your chances of being approved for a mortgage.

  • Refinance your loans – You may be able to refinance your student loans, personal loans, or auto loans to a lower rate and payment.
  • Contact your creditors – Your credit card creditors may be willing to work with you to lower your interest rates and monthly payments.
  • Increase your income – Maybe it’s time to ask your employer for a raise. You can also get a second job or put your skills to use by doing freelance work on the side. Improving your income isn’t always as difficult as it sounds, and it will increase your DTI ratio.

Defer Your Student Loans

If you have federal student loan debt, you can defer them if you meet the criteria. You may be eligible if you are enrolled in a graduate program, are a veteran, or have financial issues. Check if you meet the requirements to defer your student loans on the Federal Student Aid website.

Improve Your Credit Score

The higher your credit score, the lower your interest rate will be. A higher score also allows lenders to accept a higher DTI ratio. Before you apply for a mortgage, you should work on improving your credit score.

  • Pay down your credit card debt – Your credit utilization ratio is the amount of available credit you’re using, and it accounts for 30% of your fico score. Try paying down your balances to less than 25% of your credit limits to maximize your score. You can also contact your creditors to ask them to raise your credit limits.
  • Dispute negative accounts – You can dispute anything on your credit report you believe is inaccurate with the credit bureaus. They have 30 days to contact the creditor to validate the account, or it must be removed from your credit report entirely.
  • Pay your bills on time – Your payment history is the biggest factor in determining your credit score, making up 35% of your overall fico score. You need to stay on top of your payments; a single late payment can significantly impact your score.

Tips on how to increase your credit score in 30 days

Get Pre-Approved First

Getting pre-approved for a mortgage is the first step in buying a home. It will tell you if your debt-to-income ratio is too high, so you can take the steps outlined in this article to lower your DTI. You can be pre-approved quickly. A lender will need to pull your credit and verify your income and assets. Have the following documents to speed up the process.

  • Last two years w2’s and tax returns
  • 30 days of pay stubs
  • Last two months of bank statements

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Consider all Loan Types

You will not qualify for a conventional mortgage with a DTI ratio above 43%. Government home loans have less strict DTI requirements allowing borrowers to qualify with up to a 50% DTI ratio.

FHA Loans

FHA loans aren’t just for first-time homebuyers but you could be eligible with a 580 credit score, a 3.5% down payment, and a DTI ratio as high as 50%.

Home Possible / HomeReady Loans

Fannie Mae and Freddie Mac created the Home Possible and HomeReady loan programs for low-income buyers whose income is below 100% of the area median income (AMI). You can qualify with up to a 50% DTI ratio, a 620 credit score, and just 3% down.

First-Time Home Buyer Programs

You may be eligible for first-time homebuyer programs that provide down payment and closing cost assistance. You can also check for local first-time homebuyer programs in your state by going to the HUD website.

The Bottom Line

You can buy a house with student loan debt. Just remember the monthly student loan payments count against your debt-to-income ratio, so you should work on improving it.

Paying down debt, getting a second stream of income, and raising your credit score can help you.

You should also check if you’re eligible to defer your federal student loans.

Source: thelendersnetwork.com

4 Inexpensive East Coast Destinations to Travel to With Your Family

It’s amazing how things change when you have kids. Before kids, weekend getaways and trips were fairly easy. When we needed to take a break, I remember we could look at the calendar and twenty minutes later, have a few dates to run by work for time off.  Even the destinations would already be top of mind and after looking for deals on travel sites and asking around, we’d settle with whatever had the best price. Pretty easy.

Fast forward a few years and now we’re parents of an eight-year-old and a four-year-old.  

Those first few years with our little ones were honestly rough. We’re trying to coordinate between two jobs and one school schedule. It was tough finding the perfect time to take a week or so off. Once we had our dates, we’d then have to make sure that we could find a deal. Thankfully, we’ve gotten a little bit wiser. We found our footing and came up with our little system for timing our vacations and snagging some good savings. We’ve also found some spots that allow us to unwind without breaking the budget 

Affordable Family Vacations to Take This Fall 

While school is back in season, that doesn’t mean you have to write off the rest of the year.  You still have time to take one last getaway to recharge your battery, have some fun, and connect as a family.  

To make things easy for you, I want to share a few of our favorite spots that both we and the kids enjoyed. The cherry on top? They’re also affordable spots!  

Daytona Beach, Florida 

If you’re looking to escape and have some beach time, then Florida is the way to go. However, staying in Orlando is not on the list if you’re looking for a chance to relax and actually save money. Instead, soak up some beach time before the weather gets too cold and hang out for a bit in Daytona Beach.  

When we did our trip last October in Florida, it couldn’t have been more perfect. The weather was still warm, the large crowds of tourists were gone (along with the overpriced hotels), and there were plenty of things to do around.  

Racing fans can enjoy the Daytona International Speedway or if you’re in the mood for stars, you can head over to MOA’s planetarium.  And if your kids really want to visit the Magic Kingdom or Universal Studios, you can make it a more affordable day trip rather than blow your budget by spending your whole time there.  We once went to Universal right after Thanksgiving and were able to skip waiting in line because it was so quiet.  

Charleston, South Carolina 

We took trips to Charleston for the last few Decembers and I have to say, we’ve enjoyed every one. While the temperatures have cooled down a bit, making beach time minimal, we still managed to be out and about. Throw on a jacket, wear your fall layers, and you’re all set to hit the town and enjoy some history and food.  

You have to visit The Tavern at Rainbow Row. Besides being the oldest liquor store in the country, the vibe there is incredible. It’s small, but the selection is wide. Want to have an incredible lunch that’s still cheap? Try out The Blind Tiger. The truffle duck, bourbon bread pudding, buffalo cheese curds are delicious.  

Asheville, North Carolina 

One of our favorite low-key trips we’ve taken was a camping adventure with some friends just outside of Asheville. Being able to see the mountains shift into autumn colors was incredible. If you’re a photographer or love being outdoors, you have to take a trip here. It’s so peaceful and the views are amazing. For the parents, Asheville is the hot spot for fantastic food and a wide array of awesome breweries.   

After spending your days enjoying the parks and maybe getting some tubing in, treat yourself and the kids to Double D’s Coffee and Dessert. It’s a cool double-decker bus in the city that’s also nearby Wicked Weed brewery.  

Tuxedo, New York 

If you absolutely love New York City but also relish some peace and relaxation that a more rural spot gives, then you should check out some of the small towns upstate.   

I may be a little biased since I lived here for a few years, but fall is pretty much the best time to visit. You can truly have the best of both worlds with renting a spot in a town just outside the city.  The Metro-North Railroad means you can take a train to New York City, allowing you to enjoy a scenic ride and skip put on the nightmare of driving in Manhattan.  

Have your day trips to shop, visit the museums, and explore some of the best restaurants. You can then head back to your affordable getaway spot and enjoy some of the local events including celebrating autumn with exquisite apple cider.  

Saving Up for Family Trips 

While you hunt for the deals, you can start now saving up for your trip. You can create a vacation fund as separate savings to keep you motivated.  

Using a tool like Mint makes it easy to track your progress and help you find ways to trim your budget a smidge so you have more money for fun during your trip. Knowing our money leaks allowed us to try some fun monthly challenges to sock away an extra couple hundred dollars.  Keep your vacations debt-free also means there’s less stress as you don’t have to worry about a bill afterward. Double win in my book!  

If you’re looking for tips, please check out my post on how to shift gears and become a savvy saver.  It’s much easier than you think and you’ll be surprised at what you can accomplish in one month.  

Your Take on Family Getaways 

Wherever you go, I hope you have a wonderful time together. Now that you know my favorites, I’d love to hear about your spots.  What have been some of your best vacations together?  

 

 

 

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Source: mint.intuit.com