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January 10, 2019

Managing Student Loan Debt and Buying a New Home

It can be scary to apply for a mortgage or any loan. When it’s your first home, the new experience can be especially daunting. Add to that a student loan hanging over your head (and in your credit report), and you might feel like postponing the decision. But managing student loan debt and buying a new home can happen together. Alvarez Construction Company and Eustis Mortgage have some advice and solutions for finding the home and the loan that leads you on the path to homeownership!

The National Association of Realtors reported that 33% of all homebuyers were buying their first home, a 1% decrease from the year before. And 27% of those people who bought a home in 2017 were single. Put those two factors together, and you can expect that some of the buyers bought a home while paying off student loans.

A report from American Student Assistance showed that 55% of people with student loans said the debt was causing them to hold off on buying a home. Sadly, many potential homeowners are missing out on a valuable investment and still paying rent because they don’t understand the home loan process.

Anthony Williams, Eustis Mortgage’s Vice President and Branch Retail Sales Manager, weighed in on the opportunities for buying a home when you carry student loan debt. He suggests that you make sure to consult with a Licensed Loan Officer to completely understand the implications of student loan debt and payment options and how they affect your individual loan program.

“Some payment types—like income-based, graduated, deferred, and forbearance—are not accepted. We are required to count a percentage of your total balance to calculate debt ratios. Your loan officer may advise you of which route best suits your long-term goals and fits with the loan program you are pursuing for the future.”

A good credit history matters more than the fact that you have a student loan. All timely payments help your credit score, so keep up with the effort. You can also manage your credit rating by avoiding the temptation to accept credit card offers. Every time a lender pulls your credit report, your score can go down a few points.

Having a qualified Licensed Loan Officer review your actual credit report is priceless as there are so many unreliable online sources that give inaccurate credit information to consumers.

A lender also looks at your ability to handle the monthly mortgage payment. The debt-to-income ratio shows how much you owe in relation to how much you earn. Your debt includes all of your monthly obligations, like credit cards, car loan, and student loan. Debt to income is a factor that takes into account credit, installment or mortgage-related accounts that typically appear on your credit bureau and compares them to your gross monthly income. The lower the DTI, the better! Your goal should be a ratio of 33% or less.

“DTI and credit are two of the most important factors that affect the outcome of a mortgage application,” Anthony says. “Although there are certain programs that are very forgiving on debt ratios, others may be very strict. Understanding how to reduce this could mean the difference between being approved or missing out on some of the more attractive mortgage programs out there.”

The other obstacle for first-time homebuyers is saving up the down payment. Luckily, there are numerous loan programs that require a low down payment, and some that require none at all!

FHA loans offer more flexibility than conventional loans. With a credit score of 580 or higher, you could qualify for a 30-year, fixed rate mortgage at 3.5%.

The USDA and VA both offer 100% financing for qualified homebuyers. The USDA Single Family Housing Guaranteed Loan provides financing for homes in certain areas that are designated as rural by the USDA. Most of Alvarez Construction Company’s communities in and near Baton Rouge qualify for the USDA loan:

Each of these communities features new construction, single-family homes. Imagine buying a new home for as little as $203,900, with no money down! Use our mortgage calculator to estimate your monthly mortgage payment.

In addition, when you choose to work with one of Alvarez Construction Company’s preferred lenders—including Eustis Mortgage—you also receive a $5,000 credit toward closing costs.

Home prices are going up, along with interest rates. Don’t postpone your decision to buy a new home just because you think your student loan debt doesn’t qualify you. Talk to a lender to find out for sure what you can afford, and what you need to do to make homeownership happen. Need some inspiration? Look at our move-in ready homes to see what you could own.

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