Are Student Loans Debt Hurting The Mortgage Market?
Many students graduating from college are strapped with large student loans. Buying a home and setting up a mortgage is one of the most expensive purchases we will make in our life. The amount of student loan debt can affect that drastically.
Now more than ever mortgage lenders are looking into several factors when it comes to handing out mortgages on first time home buyers. Student loans and the amount one owes plays a big factor is the size of a mortgage that is available and what you can afford.
New home buyers now need to educate themselves on the entire mortgage process from the cost of a home, the interest rate, their closing costs, the types of loans that are available and their debt to income ratio. It is very important to know these facts before getting into a loan.
The main factors to learn broken down into a few categories. Obviously you will need to know your income. That is step one. Know your debt. That is also important. Lastly, know your credit history or profile.
The first one mentioned is knowing your income. This becomes important when finding a home in the right price range and one that fits your budget properly. Lenders will need to see a few years of W2’s and tax returns to see what you are making and have something to validate that as well.
The next step is to know your debt. If you have a high DTI or debt-to-income ratio it can be hard to get a loan. This is where the student loans can come in and hurt one trying to get a mortgage. Many student loan debt payments can be $500 per month and more. Lenders take this into consideration when handing out loans. A DTI needs to be at 36% and no higher that 43% to get approved by most lenders now in mid 2014.
Generally speaking, many new home buyers will not be able to put 20% down for a down payment. This can require new home buyers to pay mortgage insurance to protect the loan because you would become a higher risk for the lender. To avoid the mortgage insurance, 20% would need to be put down as a down payment. New home buyers can also look into FHA loans that allow buyers to put down as low as 4% and still get a mortgage. FHA loans are Federal Housing Administration loans.
Last is to know your personal credit profile. If you have a nice history of making your payments and a high credit score, lenders will feel at ease some about handing out a loan to you.
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