By Reena Shah
If you’re a prospective first-time homebuyer but you haven’t pulled the trigger is it because of your student loans? If so, you’re not alone. In fact, 83 percent of non-homeowners cite student loans as a factor in delaying homeownership.
We’re here to tell you that you don’t have to wait!
Not only are many people still able to qualify for a mortgage when they have student loans, but the benefits of homeownership don’t disappear just because you have other debt.
Common Qualification Misconceptions
People who have student loans often believe that they wouldn’t qualify for a mortgage in the first place. This is because of two common misconceptions. First, that they must save enough to make a 20 percent down payment. Second, that their student loan debt will dissuade banks from lending them more money.
Both assumptions are incorrect. Here’s why.
1) The 20 percent down payment is not a rule, it’s a recommendation or an ‘ideal’ down payment.
In reality, there are many different loan programs that require minimal down payments. Conventional, for example, requires a minimum down payment of 3% of your purchase price and FHA loans require just 3.5%. If you are a veteran, you may even be able to qualify for 100 percent financing with the VA loan, eliminating the need for a down payment at all.
2) Having student loans on your credit does not mean that you have bad credit or that lenders won’t want to give you a home loan.
If you’ve been making your payments and have disciplined financial habits, then you probably have very good credit. This is because student loans, along with home loans, are actually considered “good debt.”
Good debt is based on the idea that you are making a good investment by taking on the debt itself. More importantly, both mortgages and student loans can be considered good debt because, in most cases, the balances will reduce over time. Combined with timely payments, your credit score is designed to respond the most favorably to these types of obligations.
Finally, there are also loan programs specially made for people with a lot of student loans such as Physician Loans.
Benefits of Homeownership Even with Student Loans
Some people may not be ready for the commitment of owning a home and although there are many benefits to renting, one thing that we can’t escape is that homeownership has been the number one indicator of wealth in America for a very long time…and that fact does not change because you may have student loans.
In addition, one of the drawbacks of renting is…renting and not owning. Think of it like you are essentially paying someone else’s mortgage and helping that person build wealth through your monthly rent payments. On the other hand, by investing in your own home, your money goes towards building your own nest egg and future wealth. Statistics support that over the long haul, homes generally appreciate in value. Making your monthly obligation an investment towards an asset that will likely grow in value and provide you additional financial options in the future.
For example, as your home appreciates in value may provide options to refinances other debts at higher interest rates, sometimes student loan debts, to a lower interest mortgage. If you are considering home improvements, other investment opportunities or even furthering your education, if you already own a home, you may be able to refinance your mortgage or access your equity through a Home Equity Loan. This allows you to leverage the equity to help accomplish other things…fix the kitchen, finance a business opportunity, or pay for grad school.
A loan officer can help you figure out if these options make sense for your specific circumstance based on your needs, wants and qualifications.
Talk to a Loan Officer
If you are a graduate with student loans, you’re still in school, or you’re looking to go back to school, make sure to speak with a loan officer. Planning your financial future with your debt-to-income ratio in mind will help you ensure that you are able to buy your dream home.
Don’t be deterred by the stress of student loans. There are options out there and there are people like me who know how to help. If you have student loans and are considering buying a home, contact me today. Or visit our contact page here.