There’s a myth floating around that you can’t buy a home if you still have student loan debt. Thankfully, nothing could be further from the truth! Recent changes to FHA guidelines now make it easier than ever to get approved for a home loan.

In this blog, I’ll help you get started on your mortgage application so that you can get on the path to homeownership so you can buy a home if you still have student loan debt. 

You have more options than you may think, so let’s explore them below.

FIRST, LET’S DISCUSS THE PROCESS OF GETTING A MORTGAGE WHEN YOU STILL HAVE STUDENT LOAN DEBT 

Before I dive into the impact of your student loans on your ability to get a mortgage, I should first take you through the process of applying for a home loan preapproval. A mortgage underwriter will go over your application with an eagle eye to determine your level of risk.

Here’s what they’re looking for:

• Your current debt load (credit cards, car loans, etc.)
• The income of anyone applying to borrow
• Your credit score and report
• Bank statements, along with any recently suspicious activity

Essentially, lenders want to know that you’re in a position to pay back the money they’re lending you. For instance, lenders will also pay close attention to your debt-to-income ratio (DTI) to learn how much you make versus what you owe to creditors.

WHAT A LENDER MAY THINK ABOUT YOUR STUDENT LOANS

Paying off all of your student loans isn’t necessary, but it’s a good idea to make regular payments. You may wish to call your student loan provider to consolidate your loan into manageable monthly payments. It could bring down your monthly expenses, which lenders will view favorably.

Lenders need to know that you have enough money to make your payments after you get your loan. The more debt you have, the more likely you are to fall behind on your payments.

Remember, you’re being evaluated on your ability to repay your mortgage. The better grasp you have on your finances, the better chance of getting approved for a loan, even if you still have student loan debt. If you need some guidance, get in touch with me and we can craft a customized plan to help stabilize your finances so that you can get approved.

FEDERAL HOUSING AUTHORITY (FHA) GUIDELINES FOR BORROWERS WITH STUDENT LOAN DEBT

There are many different options available to you to a buy a home if you still have student loan debt. A very appealing option is a government-backed loan from the FHA, which means the government will guarantee the loan if you ever default. Not surprisingly, lenders tend to look a bit more favorably on these products, as it minimizes the potential risk for those with high debt loads.

There are even new student loan calculations for FHA mortgages that make homeownership attainable for those with student loan debt:

• The 1% rule has been eliminated. Before the change, underwriters were required to use 1% of the loan balance to determine a borrower’s monthly student loan payment when the loan was deferred. Now, if the payment on your credit report is $0, we can use 0.5% of the loan balance to calculate your monthly payment.
• Regardless of the payment status, the Mortgagee must use either the greater of 1 percent of the outstanding balance on the loan, the monthly payment reported on the Borrowers credit report, or the actual documented payment, provided the payment will fully amortize the loan over its term.
• Lender standards may also apply-check with your loan officer to see what other rules must be satisfied.

I know that this can all be confusing, which is why I invite you to reach out to me directly. I have additional resources to help you realize that getting a mortgage is possible, even if you still have student loan debt.

BOTTOM LINE

I’m available to help you sort through your finances and get ready to buy a home even with student loan debt. Together, we’ll pinpoint your challenges, help you get a handle on your debt, and, most of all, get approved for a mortgage. Get in touch with me to get on the road to homeownership. It is possible!