According to Forbes, the total US student debt was more than 1 trillion dollars and 45 million US citizens have student loan debt.( Link: https://en.wikipedia.org/wiki/Student_debt ; 2018) That’s a huge number and almost 10% of the total US debt. Many of the college graduates who have taken out student loans during their undergraduate period have faced problems while buying a house or even a car. But it is not impossible to buy your dream house when you have student loan debt. Here are a few strategies and tips to follow when you have student loan debt:
Top 3 Tips for Buying a house
1. Improve your Credit Score
Credit score is an important factor in getting a house loan. It shows how risky you are as a borrower. FICO credit score is commonly used and its range is between 350-800. An applicant with a higher score is considered a low-risk borrower. If you have more than a 750 credit score, you are likely to get the loan. But lower than a 600 is considered a poor credit score. You can improve your credit score by following:
– Credit utilization is 30% of the total credit score. The credit utilization rate shows how you are utilizing your credit. The less you use your available credit, the higher you will score.
– Payment history adds 35% to the total credit score. So, try to pay your bills regularly.
– Don’t try to use any new credit card or apply for any loans. If you do so, chances are you will not get the loan.
2. Manage Your DTI Ratio
If you have a lower debt-to-income (DTI) ratio, chances are you will get the loan. It is an important factor for banks and other financial institutions to look at. The DTI ratio is the percentage of monthly debt payment of your income/monthly. It shows whether you have enough money to cover your living expenses and the debt. You can lower your DTI ratio by the following:
– Increase your monthly or annual income
-Consolidate the student loan
– Repay your debt
– Try to enroll your student loan with your monthly income. It will require 12-15% of your monthly income to repay the student loan.
3. Find Your Home after Getting the Pre-approved Mortgage
Many people make this mistake. They search for the home before getting the mortgage. That’s not the right order. First, you should get the mortgage and then look for your dream home. Banks or financial institutions will ask for a few documents before giving you the pre-approval. These are your income statements, debts, residence history, employment status, etc. Also, you should ask the lenders about the amount of down payment whether you can afford it or not. If you follow these tips you will surely get the loan for your house even though you have a student loan debt. These 3 tips will help you to reach closer to your American Dream.
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