When Student Loans Prevent You from Buying a Home
Student loans are ruining homeownership for millennials. According to one study by American Student Assistance, as much as 55% of student loan holders reported their debt to be the leading cause of their delay of homeownership. If you have student loans that are hindering your ability to purchase a home for the first time, do not be discouraged ‐ there is hope.
The most important aspect of mortgage loan approval is your monthly income in relation to your debt, also known as a debt‐to‐income ratio (DTI). Whether your debt‐to‐income ratio is too high, resulting in a lower amount of financing available to you or you simply cannot get approved for a loan, the following tips may help you to reduce what you owe to the government so you can get the home you deserve.
- Switch to a Graduated Repayment Plan
A graduated repayment plan is a plan in which the payment starts low and gradually rises every two years to meet your rising income as a college graduate. Your debt‐to‐income ratio will be reduced with lower monthly payments, which can help you to qualify for a higher home loan.
Loan consolidation may also be a viable option ‐ especially if your loans have different rates of interest and are in different amounts. If you consolidate your loans, you can lump your principal balances together and (hopefully) lower your interest rate.
Lengthen Your Payback Period
Your term is also known as a payback period. If you lengthen your term to 15 or 20 years, you may be able to reduce the amount you owe each month, which will bring your debt‐to‐income ratio down. This can increase your long-term interest costs but will lower your monthly obligation so you can get in the home you want now.
Check out Madison Monroe and Associates online today for more tips on making smarter financial decisions.