Student Loans Preventing Your From Getting a Loan? Here's How to Beat it.

Student loans make buying a home much more of a hassle than it needs to be. Let’s figure out what the root problem is and how buyers can overcome it.

Problem number one is the student debt is often included in the buyer’s debt-to-income ratio (DTI). Your debt-to-income ratio is the percentage of your monthly income that is spent paying your debts. This would include your mortgage, student loans, auto loans, credit card payments, and child support. All these have a major impact on your DTI number.

Lenders use this factor pretty heavily in deciding if you are a good candidate for a mortgage. The preferred number among lenders is 36%, or below. Sometimes, 43% is allowed.

Before applying for your mortgage, make sure this number is quite healthy.

Your house payment is one of the most important factors in this ratio. Your DTI will be fluctuating since the house payment is affected by the property taxes, interest rate, and house price. IT doesn’t work in the way that everyone is qualified for a certain price. He bank just looks at the underwrite and what your monthly payment is.

Student loans aren’t always included on your DTI ratio, it just depends on what type of loan you he and if your payments are current.

If the buyer gets a conventional mortgage (VA loan – guaranteed by Veterans Affairs) the student loan will be included, even if payments have been deferred. If the buyer gets an FHA loan (insured by Federal Housing Administration) the ratio will be included unless the payments have been deferred for at least year. In this case, the payments can be excluded from the DTI.

The three ways to overcome DTI trouble is to reduce your debt, increase your income, and decrease your target mortgage payment.

Reducing your debt

If you have any loans that can be paid off within 10 payment periods, do it as fast as you can because lenders will remove this particular debt from the ratio. Paying off credit cards does help, but since it is an open-ended debt cycle.

If you can get a private loan to pay of student loans, do it! The only thing is that you have to disclose this information to the lender.

If you are married and don’t live in a “community” you could get creative with the numbers and overcome the DTI.

Increase income

Typically, the income must be documented for two years for it to be included in the DTI. Often times, buyer’s college history makes up most of that 2-year time frame, and a new job in the field isn’t a bad thing, especially if it boosts your salary. The income could be used to qualify the moment you have 30 pay stubs.

The rules of commission, bonuses, self-employment, and hobby businesses are a bit different, and too long to review.

Decrease mortgage payments

This might sound illogical, but buying a house over a condo can improve your DTI. This is because homeowner association fees aren’t included in the condo payment, but never with a house.

It has happened before where the buyer qualifies for a house over a condo priced the exact same. This is because the association fees are included.

It surely helps to live in a part of town with low property taxes, or paying the initial fee to decrease the mortgage interest rate. Basically you are buying down your payments.

These are a few ways to bring your DTI down, so keep your nose to the grind and get that house you’ve been wanting!

Discussion

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