Getting a Mortgage with Student Loan Debt
Once you finally get your hard-earned college degree, you feel confident and ready to tackle the world and make it a better place. However, that tackling will likely involve managing your student loan debt. With that debt your chances of qualifying for a mortgage become more of a challenge.
Based on date from the America Student Assistance (ASA), Americans now have more than 1.4 trillion in student loan debt. On a national level, a 2017 college graduate is strapped with student loan by over $37,000.
In Orange County, college graduates from UC Irvine, are on average in debt by $20,628, At CSULB, it is $15,917 and $21,830 at UC San Diego in La Jolla.
Depending on your income, the student loan debt may have little influence on getting approved for a home loan. Many recent grads with four-year and master’s degrees still qualify for a loan each year. The following are some potential impacts when seeking to finance a home.
A survey of prospective home buyers with college loan debt over $30,000 say they will delay buying a home by more than eight years. Fortunately, lenders have become more flexible in how they calculate student loan debts.
Major Changes for Student Loans
Just before the summer of 2017, the govt. sponsored enterprise, Fannie Mae made it easier for people saddled with student debt to purchase a home or pay off their student debt with a cash-out refinance.
Of the changes, one is logical. Lenders are now able to use the actual payment of the borrower on Fannie Mae loans instead of using one percent of balance. This was long overdue since borrowers usually pay less than the one percent.
Here’s an example of how that would benefit an applicant. If your student loan payments were $900 a month at first but through an income-based repayment plan (IRP) it was lowered to just $100, then $100 would be the payment used to calculate the debt-to-income (DTI). Even better, if the IRP payment shows as $0 on the borrower’s credit report that is what the lender will use.
With these new rules and if you continue to repay your student loans on time, your chances increase to obtain a mortgage. If you become late on a federal student loan, your chances of being approved for a mortgage decrease a lot. Always make your student loan payments within 30 days of the due date each month.
