Balancing any household budget can be a juggling act. Adding a mortgage loan on top of everything else can make it seem almost impossible. In fact, Millennials have put off big investments like purchasing a home, often citing the large amount of student loan debt they carry. But putting your life on hold forever is not feasible. Especially if you don’t want to spend the rest of your life paying rent. Thankfully, there are ways to find a balance in that juggling act, so that you can take steps towards becoming a homeowner.
Before getting a mortgage, you want to make sure that you’re in the best possible position to get the best deal that the mortgage lender has to offer. Sometimes that means waiting a little longer for what you want. Sure, it can feel like a money sink to continue to pay rent each month. But rushing into the mortgage process before you’re prepared can have very serious long-term financial consequences.
If you have a large number of student loans, consider how comfortable you are with carrying two large debts on your current income.
Take stock of all your finances and debts before shopping for a home loan. And take steps towards increasing your credit score as much as possible.
The extra year or two it takes to pay down more of your student loans or unsecured debt? That could help you qualify for a loan with a lower interest rate, or a mortgage with more spending power.
Lastly, work to boost up your savings. You’ll want a big chunk of your down payment ready before starting the application process.
There are many factors that impact your ability to get a loan. But planning ahead will make your student loans much less likely to impact the mortgage loan process.
Lending Rules Are Here For You
We all like to think that rules are meant to be broken. But in the world of finance and mortgages, that logic does not apply.
Lending rules are important because they help keep you safe and prevent future financial catastrophes. When taking the leap to homeownership, consider the areas in your life that are currently secure (like your job and income). Think about what would happen if things were to change.
Currently struggling to make on-time payments? Do you have loans that are in forbearance? Then you’re most likely not in a position to take on the responsibility of a mortgage on top of your student loans.
If you do feel confident about your ability to pay your bills on time and are ready to jump into home ownership, remember that it’s okay to purchase a home that’s below the price of the loan you are offered—especially if you’re a first-time homebuyer.
Your first home might not be your ultimate dream house, but having a starter house is better than breaking the bank.
Take stock of a few things that are important to you and see what you can compromise on—at least until your student loans are paid off. When that happens, hopefully you can afford something bigger and better.
Don’t Forget To Look For Breaks
Although there are many rules surrounding home ownership and mortgages, there are also a large variety of breaks and deductions available to you as a homeowner.
Property tax deductions, tax credits, and first-time homebuyer programs are all built to help you put some money back in your pocket. Don’t be afraid to ask your lender about what your options are.
When tax season rolls around? Be prepared to spend a little more time itemizing and deducting than you did when you were a renter. Many of the programs offered to homeowners vary by state, city, and even county. So make sure you’re doing your research. Put that money back in your pocket (and towards paying down those student loans).
Your Loans Matter To The Bank
As you’re probably aware, not all loans are built equally. For lenders, some loans matter more than others in making the decision to give out a mortgage offer to a customer. If you want to be in the best possible position, be sure that your debt-to-income ratio is as low as possible. Although mortgage lenders factor your student loans into this ratio, that’s not necessarily bad news! Most lenders are not averse to extending a loan to someone with a large student loan debt. Rather, they’re primarily concerned with how much you pay monthly on that debt.
If you show that you are able to handle paying your bills on time and handle your debt responsibly, lenders are often willing to extend you an offer that can fit within your monthly budget.
However, before refinancing or consolidating your loans to have lower payments, pay attention to the fine print. Refinancing federal student loans turns them into private loans, which often don’t offer the same protections. Many federal loans include the availability of income-driven repayment plans. There are federal forgiveness programs that you might not want to miss out on. Think about balancing your loans for the long haul, and you’re sure to be set.
Balancing a student loan and a mortgage may take a bit of time and feel like a lot of work, but it is totally possible. Don’t let student loans stop you from reaching your dream of having your own place to call home. With a bit of forward planning and organization, you can make your home buying story a happy story.
Ready to get started? Head over to our website and let Morty help you find the right mortgage for you!