Post written by
Beatrice de Jong
<p class="bio fs-responsive-text" innerhtml="Beatrice de Jong is the Director of Residential Sales at Open Listings, where she leads the in-house team of agents.”>Beatrice de Jong is the Director of Residential Sales at Open Listings, where she leads the in-house team of agents.
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It’s not breaking news that student loans are keeping millennials and members of Generation Z in debt. In fact, the Federal Reserve credits about 20% of the recent decline in homeownership to the climbing rates of college debt. But it doesn’t necessarily mean that you won’t be able to buy property. Staying mindful of your debt — rather than overwhelmed by the large number — and focusing on what you can tackle can help you work toward your goal of buying a home.
The most important factor considered by financial institutions when deciding to lend money is your credit score. Mortgage companies use your credit score as an indicator of how well you manage to keep up on paying back your debts each month. Fortunately, it is possible to maintain an acceptable credit score even with debt from student loans, as long as you aren’t missing payments.
While you can likely qualify for a home loan with a credit score of 590 or above, it will help to raise your credit score as high as possible before applying for a home loan. A credit score over 730 is considered excellent and will help fetch you the lowest interest rate on a mortgage. Some ways to boost your credit score include making your payments on time and paying down the debt as much as you can. The only way to tackle debt is to throw money at it. Nowadays with banking and personal finance apps, it’s easier than ever to keep track of how much you owe, and even make additional payments whenever possible. My favorite approach to paying off debts is to transfer small amounts of money as a reward. For example, if you stayed in instead of going out for dinner one night, then reward yourself by transferring to your student loan the amount you would have spent on a meal out. This is a tactic I still use, but now the funds go into my savings account instead of toward my loan balance.
The debt-to-income ratio is another consideration lenders will be looking at to determine how much of a loan they will be willing to give you. Lenders will look at your student loan debts as well as any other debts like credit cards, car payments and any other monthly bills (not including rent) weighed against how much income you earn each month. Student loans are likely going to be the most expensive debt affecting your debt-to-income ratio, so consolidating or refinancing may be the best option to lower your monthly payments with a lower interest rate.
When you’re ready to begin the search for your new home, apply for a mortgage preapproval. Having a lender actually look over your finances will give you the clearest picture of what you can actually afford. Everyone has different financial situations, and a lender will be able to advise what the best action plan is for you if you need to do some further work on your credit or debt to qualify for a loan. To determine your loan qualification, a lender will review your W-2s, pay stubs and bank statements. Getting preapproved for a mortgage is a vital step for any buyer. Once you are approved, the mortgage preapproval letter will act as proof that you can afford to buy a home with a mortgage loan and help you know which homes are within your price range.
There are plenty of options for down payment assistance programs and special deals for first-time homebuyers that your mortgage lender can clue you in on to find the best option for you. Even if you can’t afford a dream home right now, don’t be discouraged. Knowing what steps to take toward your goals, and implementing the steps to get there, will pay off.
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It’s not breaking news that student loans are keeping millennials and members of Generation Z in debt. In fact, the Federal Reserve credits about 20% of the recent decline in homeownership to the climbing rates of college debt. But it doesn’t necessarily mean that you won’t be able to buy property. Staying mindful of your debt — rather than overwhelmed by the large number — and focusing on what you can tackle can help you work toward your goal of buying a home.
The most important factor considered by financial institutions when deciding to lend money is your credit score. Mortgage companies use your credit score as an indicator of how well you manage to keep up on paying back your debts each month. Fortunately, it is possible to maintain an acceptable credit score even with debt from student loans, as long as you aren’t missing payments.
While you can likely qualify for a home loan with a credit score of 590 or above, it will help to raise your credit score as high as possible before applying for a home loan. A credit score over 730 is considered excellent and will help fetch you the lowest interest rate on a mortgage. Some ways to boost your credit score include making your payments on time and paying down the debt as much as you can. The only way to tackle debt is to throw money at it. Nowadays with banking and personal finance apps, it’s easier than ever to keep track of how much you owe, and even make additional payments whenever possible. My favorite approach to paying off debts is to transfer small amounts of money as a reward. For example, if you stayed in instead of going out for dinner one night, then reward yourself by transferring to your student loan the amount you would have spent on a meal out. This is a tactic I still use, but now the funds go into my savings account instead of toward my loan balance.
The debt-to-income ratio is another consideration lenders will be looking at to determine how much of a loan they will be willing to give you. Lenders will look at your student loan debts as well as any other debts like credit cards, car payments and any other monthly bills (not including rent) weighed against how much income you earn each month. Student loans are likely going to be the most expensive debt affecting your debt-to-income ratio, so consolidating or refinancing may be the best option to lower your monthly payments with a lower interest rate.
When you’re ready to begin the search for your new home, apply for a mortgage preapproval. Having a lender actually look over your finances will give you the clearest picture of what you can actually afford. Everyone has different financial situations, and a lender will be able to advise what the best action plan is for you if you need to do some further work on your credit or debt to qualify for a loan. To determine your loan qualification, a lender will review your W-2s, pay stubs and bank statements. Getting preapproved for a mortgage is a vital step for any buyer. Once you are approved, the mortgage preapproval letter will act as proof that you can afford to buy a home with a mortgage loan and help you know which homes are within your price range.
There are plenty of options for down payment assistance programs and special deals for first-time homebuyers that your mortgage lender can clue you in on to find the best option for you. Even if you can’t afford a dream home right now, don’t be discouraged. Knowing what steps to take toward your goals, and implementing the steps to get there, will pay off.