Student Loans Impact your Ability to Obtain a Mortgage
While the interest rates are still at an all time low, and the prices are more affordable to own in comparison to renting, student loan debt is increasingly impacting the ability for many first time home buyers to qualify for a mortgage. I often hear, I want to buy a home and I have a good job and decent credit. When I then refer them to a lender to pre-qualify them for a mortgage, I often hear the student loan debt is impacting their ability to purchase the home of their choice as the amount they qualify for is reduced due to student loan debt.
Debt to Income Ratios is the comparison of a person's total debt payment requirements to their total income. The more debt someone has, the less available income that can be used to qualify them for a mortgage. While this is not exactly how it is configured, if you have an income of $40,000 per year and your student loan payments are, or will be, totalling $450 per month, the annual deduction from your income for that debt is $5400, leaving you with a reduced usable income of 34,600. If you have a car payment as well for $400 per month, it gets reduced once again. Credit card debt and any other debts on your credit report are also deducted before your lender configures the amount you would qualify for.
Many students feel it is great to go to school without having to experience the burden of paying, with the hopes of obtaining a higher paying job upon completion. Unfortunately, many college graduates are unemployed or underemployed, and are paying higher housing costs in rent as well. This is a slippery slope, especially when it comes to those unsubsidized loans that have compound interest accrued throughout the education process.
It is strongly urged that students are mindful of the loans they are assuming responsibility for. They never go away until you pay them in full and the compound interest loans should be paid off as soon as possible. Keeping your debt to a minimum, whether payments are deferred or not, can make the difference in whether you can own or must rent your home.
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