Student loans: a reality check

It can be hard to think about buying a home while you’re still paying off your student loans. The thought of getting into more debt can be daunting, especially if you’re far from the finish line of student debt repayment.

Check your new rate (Jul 19, 2021)

Research: student loans exceed annual income

Data shows that most millennials struggle with large student loan debt, which may have hurt their chances of owning a home. Respondents say it can take years before they are ready to buy.

Image courtesy of the National Association of Real Estate Agents

A new study by the National Association of Realtors (NAR) and American Student Assistance has yielded interesting results. After interviewing millennials, they discovered that:

• Typically, they have student debt ($ 41,200) that exceeds their annual income ($ 38,800)
• Only 20 percent currently own a home
• Of the eight in ten who don’t own a home, 83% believe their student loan debt has impacted their ability to buy
• Eighty-four percent expect to have to postpone the purchase for at least three years. Seven years is the median time they expect to have to wait to buy
• Almost 80 percent borrowed funds for their studies at a four-year college
• Thirty-two percent had previously defaulted or forbeared on their loans

Student debt hits new heights

Jessica lautzNAR’s chief poll research and communications executive says the report found millennials actually have worse student debt problems than previous generations.

“Eighty-three percent say their student loan debt is delaying them in the purchase. That means they can’t save for a down payment, ”she says. “They also don’t feel secure enough financially because they pay so much for their student loans.

Buying a home with student loans just got easier in 2017

Lautz cites an alarming statistic: According to Experian, university loan balances for Americans have increased by more than $ 833 billion over the past 10 years, reaching a record high of $ 1.4 trillion.

Robert johnson, president / CEO of the American College of Financial Services, says it’s also more difficult for these millennials to qualify for real estate financing.

“Mortgage lending standards have become much stricter since the financial crisis. With high levels of student debt, millennials just can’t meet the new, higher standards for mortgage debt, ”Johnson said.

DTI counts

Another thing that makes it difficult to approve a mortgage is a high debt-to-income ratio (DTI), which many millennials suffer from, says Lautz. This measure is more important to lenders than the total amount you owe on student loans.

6 ways to buy a home without paying off your student loans

“DTI is the total amount of a borrower’s monthly recurring debt payments, including credit cards, student loans, car loans, and mortgages, compared to their gross monthly income,” explains J. Keith Baker, Mortgage Banking Program Coordinator and Professor at North Lake College.

Lenders, who prefer a DTI below 43%, calculate this number using a special formula.

First, they add up your total monthly debts; this includes all loans and credit card payments, as well as expected real estate debt (mortgage principal and interest payments, property taxes, home insurance and, if necessary, mortgage insurance). Then they divide your monthly debt amount by your gross monthly income.

What you can do

Wait too long and you could miss out on still low mortgage interest rates. With the right strategies, you can better manage your debt and come closer to your dream of buying and owning your own home. Try these tips:

• Pay off as much debt as you can. This means reducing your outstanding balances on student loans, credit cards, and auto loans.
• Be on time with payments. The higher your credit score, the more you can stretch the income guidelines when applying for a mortgage.
• Work to lower your interest rate. Consider refinancing, extending, or consolidating student loans to lower the monthly payment.
• Save as much as you can for the down payment. Many lenders require a minimum down payment of 20%. If you can save even more, you can borrow less. This can lower your DTI.

Loans with no and low down payment in 2017

• Go home for a while. “Among first-time buyers, we found that the highest proportion move directly from a family member’s home to their own home,” says Lautz. “By living with mom and dad or a parent, you can pay off your debt faster and save faster for a larger down payment. “
• Find out about a HomeReady mortgage. You only need a 3% down payment, mortgage insurance is reduced, and guidelines are more lenient.
• ARM. Most beginners only keep their homes for a few years. You can get a much lower rate and repayment by opting for a loan with a fixed rate over three, five, or seven years.
• Convince a partner to participate. “Get a co-borrower involved in the deal,” Lautz says. She notes that a second borrower can decrease your DTI by bringing additional income to the app.
• Look for a smaller house. “One of the biggest issues with first-time buyers is buying more homes than they can really afford or need,” Johnson said. “Remember, the bigger and more expensive the house, the more mortgage payments, taxes, utilities, maintenance and repairs. “

This just in

As of this writing, Lennar Homes is launching a new program with its lending affiliate, Eagle Mortgage. Buyers of new homes in Lennar can choose this mortgage which pays off up to $ 13,000 in student loans.

New program pays off student loans when you buy a home

You don’t have to feel powerless over the fact that you have student debt. Explore your options and take action now to accelerate your dreams of owning a home.

What are the mortgage rates today?

Current mortgage rates are still very affordable – one of the reasons it may be a good idea to buy as early as possible, if you can. To get the best loan and the best rate, buy aggressively, comparing quotes from at least four lenders.

Check your new rate (Jul 19, 2021)