It is no secret that student loans cause debt ratio issues when qualifying for a home loan. While mortgage lending hasn’t caught up with student loan debt payment options, there are great solutions available. So let’s share creative ways millennials and first time buyers with even large student debt could buy a home. Plus buy a home with great terms!
Per a recent Federal Reserve report **, student loan debt is rising at an alarming rate of $2,701 per second! As of January 2017, student loan debt is approximately $1.4 trillion! Obviously this is a problem. We don’t have a solution for this stat, but we do have a great option for many that desire to be a homeowner.
One of the most popular student loan companies is Navient. Navient offers a lot of affordable resources for student loan debt.
How to Buy a Home with Student Loans
As mentioned, we have a great solution but there are rules of course. Often mortgage loans will not count the low to no payment for student loans with Income Based Repayment (IBR). The norm is to count either 1% of the outstanding balance or use the fully amortized payment. This guideline disqualifies many buyers with debt because it creates a high
debt to income ratio. For example, owing $75,000 would mean a $750 payment (using 1% of the balance). So even if the required student loan payment in this example is only $50, lenders often count $750. Obviously, it is hard for many buyers to qualify with this level of payment among other debts.
But there is a way to use IBR or reduced payments with a great purchase program. By the way, it works for refinancing too! As long as the student loans are NOT in deferment, forbearance, or have a zero payment, this program could work for you. This is a conventional loan offered through Freddie Mac which we offer to our buyers. Check out the advantages!
Benefits of Purchase Program with Student Loans
- As low as 5% down payment
- Down payment may be a gift
- Use minimum payment reported on credit report (this is huge!)
- No further payment documentation required
As mentioned, this option doesn’t apply to all borrowers but these benefits should sound really good to many. If lenders have said that using the 1% payment calculator is an issue, then talk to one of our loan officers. Using the low IBR payment reported on credit as well as using a gift from an allowed source to cover the low down payment! How about that?
These benefits help buyers overcome this huge roadblock. It can also assist younger buyers move out of their parents’ home. Also check out this additional good read: “5 Reasons Why Now is the Time to Move from Your Parents Couch“.
Additional Mortgage Options for Student Loan Debt
- Student Loan Payments and USDA No Money Down Loans
- VA Home Loans – Little Known Quirks to Get You Into a House (Including Student Loan Options)
** Consumer Credit (federalreserve.gov). As of January 2017. “The G.19 Statistical Release, “Consumer Credit,” reports outstanding credit extended to individuals for household, family, and other personal expenditures, excluding loans secured by real estate.”
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Author: Russell Smith
Team Move OVM Financial loan officer success is Russell’s primary focus. He provides the tools and techniques he used as a top producing loan officer. Additionally he offers the Team Move OVM Financial Agent Training Program. Sharing is so important to Russell so he works diligently to be a resource to loan originators and Realtors.