Getting A Mortgage Loan Despite Student Debt
According to StudentLoanHero.com, high outstanding student loans can keep you from qualifying for a mortgage loan, but here are two quick ways you can improve your chances of getting approved.
Refinance Your Student Loan. Federal loans offer benefits such as income-driven repayment options and access to loan forgiveness or cancellation. You can consolidate your loans into one payment, but the interest rate won’t change. If you refinance with a private lender, you’ll lose those benefits, but you could go from paying 8% to as low as 3.25% interest, giving you lower monthly payments that save you thousands of dollars.
Improve Your PITI and DTI. The lender wants to know one thing – can you afford a monthly mortgage payment? Lenders use two ratios – gross income to the monthly payment and the amount of debt- to- income. PITI is your total monthly payment including loan principal reduction (P), homeowner’s insurance(I), property taxes(T), and interest rate(I). Divide your target monthly payments by your monthly gross income and PITI should be no higher than 28% to 31%. DTI is adding all your monthly debt payments, including child support, credit card bills and student loans and dividing the total by your monthly gross income. The percentage should be no higher than 36% to 43%.
The results will tell your lender which loan programs will best fit your needs and keep your monthly payments within the correct ratios. Meanwhile, retool your budget to save more and spend less and use the difference to pay off credit cards.