How to Buy a Home with Student Loan Debt

tips for buying a home with student loan debtStudent loan debt can add a very big strain on a young home buyers budget and can even make obtaining a home loan difficult for some. However, this doesn’t mean that you cant buy a home. You most certainly can still buy a new home, but there are things to keep in mind while you are in school and also once you are done.


What Lenders are Looking At

First you need to understand what lenders are looking for in regards to buying a new home, student loan debt and how to increase the success of your home loan application being approved.

  • Your Total Financial Picture; Debt-to-Income Ratio

Student loans are generally long-term debts just as other types of loans are. Long term debt meaning that it will take you much debt is debt and lenders are looking at your ability to repay your existing debt and still be able to comfortably pay a new home loan at the same time. For this, lenders use a Debt-to-Income ratio. A predefined set of debt and income limits that need to be met for a lender to feel comfortable in your ability to repay them.

  • Your Payment History Track Record

Lenders also look at your payment history with your student loans. This of course will affect your credit score significantly if you default or even have late payments. A good payment history is very important so make those payments on time, every time.

  • Your Credit Score

Why is this last on the list? Because even with the best credit score out there, if you have too much debt, you are still going to face issues. Period. It has been said that having a solid debt to income ratio is just as, or even more important, than your actual credit score. However, most lenders agree that a credit score of 680 and above is an adequate number to shoot for. If this is not your number, there are also a lot of loan programs sponsored by the government to assist home buyers.


Tips for Buying a Home with Student Loan Debt

It’s not impossible to be a home owner with student loan debt. In fact, the majority of America does it. Find out how to best increase your success rate of becoming a home owner by following the tips below.

  • Know the Difference Between Unsubsidized and Subsidized Loans

When you are in school, you will likely be offered two different types of student loans; subsidized and unsubsidized loans. The difference between these two, is important. Unsubsidized loans mean that your loan will be incurring interest while you are in school and you are responsible for this. It doesn’t mean that you have to pay it while you are in school, but its definitely a good idea to do so. Subsidized loans mean that the federal gov. will pay your interest on the loan amounts while you are in school. However, six months after you are out of school, you will be responsible for paying this and your loan back.

Do yourself a favor and pay the interest while you are in school. This will also provide you with an added bonus at tax time  because you can right off a certain amount of interest you pay on your student loans, making your tax liability less and your income tax return more.

  • Take Student Loans Very Seriously

It has been said before that there are two things you cannot escape in life; death and taxes. Well, add student loans to this list. Short of dying, you cannot get rid of your financial obligation to the government.

Recently there have been “loan forgiveness” programs out there but they typically take 10 years of public service for them to go into affect. This wont help when you are wanting to purchase a home in the next couple years.

So, keep in mind that student loans are just as serious as any other financial obligation out there, if not more. If you fall behind on your student loans it goes down on your credit and can be extremely unfavorable for you later on. Take your student loans very seriously to avoid default. If ever you should fall behind on your loan payments, contact your lender immediately to ask about your options. There are all kinds of programs out there to help with student loans, but you have to ask.

  • Avoid private lenders when obtaining a student loan. 

Private lenders charge significantly higher rates of interest . These loans can also contain shorter-term amortizations which will inflate the total payment obligation.

  • Consolidate Your Student Loans

Often times student borrowers obtain several different loans over the course of their education. While the final debt amount is roughly the same, the minimum payment due is not. For example, say you take out eight different student loans and the minimum payment amount on each is $25.  This automatically shows lenders that you have to fork over at least $400 a month to pay your student loans. This increases you overall debt payments amount and decreases the amount of income you have available to pay on a mortgage loan.

  • Stay Realistic with your Budget and Your Dream Home

When it is time for you to get that home loan, be realistic with your monthly bills, your monthly income and the price of home that you looking at purchasing.

Often times, people have their minds set on a specific home  and don’t want to look at the anything less than this. They sometimes think even though it will be difficult that they will just make some sacrifices and “make it work”. Don’t let your the vision you have for your dream home taint the reality of your financial situation. By not looking realistically at your own individual circumstances, you could bite off more than you can chew and create a very strained living situation. This can result in financial burden and steal the joy of owning a new home.


 Time to Buy Your Home, Find a Buyers Agent

Debt and home buying are serious issues and when it’s time for you to buy your home, find someone who will work for you and generally speaking, that is most always a Buyers Agent. A Buyers Agent’s true job is to work for the Buyer in a real estate deal. It is wise to have someone solely dedicated to you when it comes to a financial situation as serious as this.

If you would like more information about buying a home in Arkansas and what options are available for you, please don’t hesitate to Contact Us today.

Buyers First Realty of Northwest AR

Steve Atwell, Buyer’s Agent for Northwest Arkansas

Email:  Steve Atwell

Phone: 1-866-809-7059  |  Cell: 479-685-3363 | Fax: 1-800-479-1503