If you pay student loans, you may think that it is impossible to buy a house. Not so. If you find the balance of your student loan reasonable, you can qualify for a house. But there are some things you need to know (and think about) before you incur more debt. Here are seven questions to consider.
1. Can you afford a house?
Before you take over the idea of taking out a mortgage, ask yourself if you can pay it. The answer is hidden in something called the debt-to-income ratio (DTI). You can calculate your DTI by adding up all your monthly debt payments and dividing the total by your gross monthly income.
According to the Consumer Financial Protection Bureau, in most cases the maximum DTI you can have (including your expected mortgage payments) and still qualifies for a loan is 43%. But for your own financial security, you must aim for a much lower ratio. Most lenders want your DTI below 36%.
Do not trust the bank to tell you whether you can pay for a home. You have to figure that out for yourself.
2. How can you afford it?
If all your debts amount to almost 36% without adding a mortgage payment, there is little chance that you will be eligible for a mortgage. But if your DTI is less sairey Gampijk, play with the numbers. Add a mortgage payment to the calculations and see where you end up. If you keep an eye on a property that would result in a loan payment of $ 1,500 including taxes, private mortgage insurance (PMI) and any other costs, add that number to your calculations. If you fall below 43%, you have passed this test. (See: How much mortgage can you afford? And Too many debts for a mortgage?)
3. Have you calculated the other type of DTI?
We have looked at what some people call the back-end DTI or the back-end ratio. That is the total of all your debts. The front-end ratio only looks at your accommodation costs. Easily divide your expected monthly mortgage payment by your gross income. Most lenders want your front-end DTI to be less than 28%, although some can go up to 36%. Did you pass that test?
4. Can an FHA loan help you?
There is a misconception that people who are not eligible for a conventional loan may be eligible for an FHA loan. In some cases that is correct, but as with conventional loans, the Federal Housing Administration (FHA) has established DTI ratios that you must meet. The front-end DTI cannot be greater than 31% and the back-end DTI must be 43% or lower.
However, FHA loans often allow lower credit scores and lower down payments, and the closing costs can be covered. (Also read FHA Home Loans .)
5. What if your student loans are delayed?
As with many individual circumstances, the answer to this question sometimes depends on the lender. In the case of FHA loans, if you have issued deferred student loans, the lender must estimate your monthly payment at 2% of your total loan, even if you are on a repayment plan with a lower payment.
For conventional loans this can be as low as 1% of your balance. If the loan is delayed for more than a year, some lenders do not consider the debt as part of your current DTI.
6. Not eligible? Try these solutions
If you do not meet the qualifications described here, your goals are one of these three things: reduce your debt, increase your income or lower the loan amount. The first two are much easier said than done and can take a while, but looking for less home is very realistic.
If you are already as low as on the home front, it might be wise to rent until you can discuss your sairey Gampast debt and your income level.
7. But can you really afford it? The most important question may not be that you can pay a mortgage with industry
standards, but instead if it is affordable according to your own standards. Do you have an emergency fund? Do you have sufficient insurance? Do you have transport that has a reasonable chance of survival in the coming years? If you are a couple and your finances are based on two incomes, are you planning to continue working together? Before you make a new payment, you must have a plan to tackle the debt that you have now (see Preparing a plan to pay the college debt
to solve). Renting can offer you the flexibility you need until you get a better financial basis later. It is not necessarily cheaper to rent, but you will not be locked in a mortgage and when something goes wrong with the house, the landlord will in most cases have to pay for the repairs, not you. The bottom line Although the chances may seem small, a study by Zillow found that someone who has earned a bachelor’s degree from a student without saire Sairey Gampening has a 70% chance of owning a house. Add $ 50,000 in student loan loans to that person and his or her chance of home ownership only drops to 66%.
The study proves that most people find ways to pay for a home while paying for student loans. The most important question you should ask is: does this make sense for you and your family?