If you’re one of the 45 million Americans who carry student loan debt, the idea of adding a monthly mortgage payment may not seem feasible. A recent study by the National Association of Realtors claims that more than 80% of people ages 22-35 haven’t bought a house yet because the current burden of their educational loans is too much to bear.
So, what options do you have? Is there a way to overcome your student loan debt and feel comfortable buying a home?
One of the biggest issues with carrying a large student loan is its effect on your debt-to-income ratio that is calculated when you apply for a mortgage. The more debt you have, the more unappealing or risky you become to a potential lender.
Experts recommend paying down or refinancing some of this existing debt so that your debt-to-income ratio is more manageable at the time of mortgage application.
“Paying off a credit card, or consolidating your existing loans go a long way,” says Doug Sheridan, Managing Director of REX Home Loans. “Being able to show a lender that you are managing your debt and taking steps to reduce your monthly expenses makes their consideration that much easier.”
Turn to Fannie Mae for help
A recent Bankrate.com article outlined the ways government-sponsored lender Fannie Mae is providing assistance for struggling homebuyers.
- Student Loan Cash-Out Refinance: Offers homeowners the flexibility to pay off high-interest student debt while potentially refinancing to a lower mortgage rate.
- Debt Paid by Others: Excludes from the borrower’s debt-to-income ratio non-mortgage debt, such as credit cards, auto loans and student loans, paid by someone else.
- Student Debt Payment Calculation: Allows lenders to accept student loan payment information on credit reports, making it more likely for borrowers with student loan debt to qualify for a mortgage.
“These options are designed to get more people in the buyer pool,” says Sheridan. “Maybe the most interesting is the “Debt Paid by Others” option that allows for a buyer’s current debt to be subsumed by someone else.
If you have friends or family that can help with even a small portion of your current debt, it could go a long way to getting you approved for a mortgage.”
Consider a co-signer
Rafael Reyes at MagnifyMoney.com says turning to a co-signer is something to consider as well. Just make sure you realize all the ramifications of a co-signer before moving forward.
“One big detail to keep in mind is that the only way to get your co-signer off the loan would be to refinance that mortgage,” says Reyes. “There will be costs associated with the refinance of a few thousand dollars, so budget accordingly.”
Work with an experienced mortgage professional
Ultimately, you want to work with an experienced mortgage professional to ensure all options are being vetted and presented to you.
“Being in the mortgage industry for over 30 years gives me the experience and knowledge to find every client a loan that works for them,” says Sheridan. “At REX Home Loans, we take the time to understand every individual situation and work tirelessly to make home-buying a possibility for everyone.”