Millions of young Americans have student loans and while home ownership may be perceived as out of reach for someone with an existing loan, it could be easier than you think.
We talked to Casey Cochran of Angel Oak Home Loans in Wilmington and asked her — what do potential homebuyers with student loans need to know?
Work on your credit score
Your FICO credit score matters and Cochran recommends taking steps to get your credit score to a healthy 700 for future borrowers. Lenders take credit scores into account early on in the process. So, check your credit score and begin taking steps to manage it today.
Manage a debt-to-income ratio
How much of your hard-earned money is going to paying off debt? If it’s too much, lenders may be concerned about your debt-to-income ratio. Bring down your debt totals by paying off the principal balance on your student loans, work to make more income, or do both at the same time. Cochran said a number of loans are in deferment due to COVID-19, so check with your lending officer to see how this might impact your debt-to-income ratio.
It’s best to talk it out with someone
Thinking of buying within the next year? Even if you are puttering around on Zillow and home ownership seems like a stretch, start the application process and work with a lender to learn about your options. Cochran said she would encourage anyone even planning to buy within the year to reach out. Supply in Wilmington is down at historically low rates and homes are moving at such a fast pace, home buyers should know their lending plan and have pre-approval before shopping.
“It never hurts to call someone and ask,” Cochran said.
There are options
A handful of different home loans exist, with some making more sense for student debt holders than others. From conventional borrowing, FHA loans, VA loans and more — they all have their pros and cons. But more importantly there is one loan, Cochran said, that is right for each homebuyer. A lender can walk you through your options.
Save up — we had to say it.
It may seem obvious, but you need to start saving for a home. Pay down the principal balance on a student loan and save up for a down payment. These are simple, measured steps that will boost chances of pre-approval for a mortgage. Cochran said you can become a conventional borrower with as little as 3% down. If that was way less than you expected, maybe you could borrow after all so, (refer to item No. 1 on this list.)
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