One of the big items that’s constantly been in the media is student loan debt and how it’s impacting individuals and families from purchasing a home. There is no denying student loan debt is at an all-time high. The cost of secondary education has risen and continues to rise. With that said, attaining the American Dream while at the same time managing student debt obligations is still very much possible. There are, however, a few things you need to be cognizant of:
Credit Score and Credit History
It’s important to know the status of your student loan debt. It’s not uncommon to look at credit reports and see indications of late payments, disputes, loans that are in forbearance that shouldn’t be or vice versa. Timely payments of your student loan debt and, for that matter, any type of liability are important. It’s especially important that if payments are not required that they are reporting as such, and on the flip side of that if payments are required that you are making them on time or before they are due.
Debt-to-Income Ratio (DTI)
Debt-to-income ratios are an important factor when attaining residential home financing. Debt-to-income is simply your debt obligations divided by your gross monthly income (i.e. pre-tax). There are certain things that are not included in this calculation including but not limited to: utility bills, health insurance, gym membership, etc. There are loan programs available that allow for higher DTIs that help address the problem of student loan obligations. In connection with this, different loan programs treat student loan debt differently. So FHA (Federal Housing Agency) will treat these obligations differently than VA, USDA or conventional financing.
Down Payment
Of the items we have addressed, this is one of the most talked about and challenging items to overcome. However, there are options that offer 100% financing and require no down payment (i.e. USDA Rural Development, VA financing and miscellaneous state-offered down payment assistance programs). There are also conventional programs that require as little as 3% down and, of course, FHA programs that require as little as 3.5% out-of-pocket.
Regardless of where you are at in your life, if purchasing a home is something you are considering it’s important that you work with a professional that provides transparency, explains all options available to you and directs you in the appropriate direction to overcome some or all of the obstacles that may present a hurdle. If you’re interested in exploring your options, reach out to your local Flat Branch family today!
