The Ultimate Guide to Affording a Mortgage With Student Loan Debt
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There is no question that student loan debt can make the purchase of a new home quite challenging. However, you may wonder what exactly the issue is and how buyers can effectively overcome it. Understanding the challenges and having a plan of action can help anyone get the private home loan in Oshawa they want and deserve.
The Problem with DTI
The main issue facing those with student loan debt is that this is taken into account when determining the buyer’s debt-to-income ratio, also called DTI. The debt-to-income ratio is the total percentage of a person’s monthly income used for repaying debt, such as credit-card payments, auto loans, student loans and child support. The DTI ratio is one of the factors used by lenders when they determine if they can realistically afford private home loans in Oshawa.
Difficult to Determine
The potential house payment is a crucial part of a person’s DTI. This is because the payment for the house will be determined by the total price of the house, interest rate and property taxes, which makes the buyer’s DTI difficult to determine. This can make it difficult for some people to secure a loan.
Student Loans and DTI
If a person’s student loans are going to be included in the DTI will depend on the variety of loan and if the payments have been deferred or are current. There are three main ways to overcome difficulties with DTI, regardless of if a person is applying as a first-time borrower or seeking second mortgages in Oshawa.
Reduce Total Debt
There are some lenders that will remove a closed-end loan or installment loan, including the auto loan if the DTI is going to be paid in full in 10 or fewer payments. Paying off or reducing credit card debt may also be beneficial; however, the 10-month guideline will not apply because credit card debt is considered to be revolving.
Generally, income has to be documented for a period of two years to be included in the DTI. However, time in college can make up the entirety of that two-year period. In some cases, the income can be used to qualify you after 30 days of pay stubs are accumulated. Different rules typically apply to self-employment income, hobby businesses, bonuses and commissions.
Reduce the Total Mortgage Payment
While it can seem counterintuitive, purchasing a house, rather than a condo, can improve the buyer’s DTI since the homeowner’s association fees are included in the condo payment but not a traditional house payment. Purchasing a home in an area with fewer property taxes or paying a fee upfront to decrease the interest rate on the mortgage can also be beneficial.
Regardless of if a person is in need of a traditional home loan or bad credit mortgages in Oshawa, the first step will be to determine DTI. Finding ways to reduce student loan debt is the best way to get an affordable mortgage for a home purchase.