If you’re like many people, you’ve relied on student loans as a way of getting an education to prepare you to pursue your career goals. You may wonder how the money you’ve borrowed while in school may affect your ability to reach other financial goals that you may have after you graduate. A question asked by many people who have student loan debt is “Do student loans affect buying a house?”
Student Loans Can Make It Hard to Save Money
Many mortgage lenders look for borrowers who have saved at least a 20 percent down payment toward the cost of a new home. While there are some programs that may allow you to buy a house with only 3 percent down or even no down payment, you may have to purchase private mortgage insurance if you have less than 20 percent to pay toward your home upfront. The purpose of this type of insurance is to protect the lender if you default on your mortgage payment.
You’ll also need to be prepared to pay closing costs if you buy a home, which may include attorney fees, bank processing fees, and appraisal fees. If you have a large student loan payment, it can be more difficult to save for a down payment and closing costs.
Student Loans Affect Your Debt-to-Income Ratio
Lenders consider many different factors when deciding if they’re willing to approve you for a mortgage. Besides your credit score and the information on your credit report, they look at the ratio between your pretax income and the amount of money that’s committed to paying your debt each month. This refers to all the outstanding credit you have, including personal loans, car loans, and credit card payments. Your student loans are part of your total debt and can affect your debt-to-income ratio (DTI).
Getting Ready to Qualify for a Mortgage
The fact that you have student loans doesn’t automatically mean you can’t get a mortgage, but before you apply, carefully consider your financial picture and avoid getting in over your head. If you’re unable to save a large down payment, investigate first-time homebuyer programs. Work toward paying down some of your credit cards or student loan debt.
Some jobs offer student loan debt repayment assistance. Look for a job that does this or look for ways to increase your income with a side hustle. Also, try to cut back on unnecessary spending.
Does Your Credit Need Repair?
Before applying for a mortgage or any other type of credit, make sure that the information on your credit report is accurate. As many as 2 out of 3 people discover that incorrect information on their credit report is affecting their ability to be approved for credit.
Need help with this process? If you need help disputing inaccuracies on your credit report, Dovly offers a simple solution. With Dovly’s automated credit repair engine on your side, you don’t have to worry about misinformation on your credit report getting in the way of getting a mortgage. Get in touch with Dovly today.