Currently, around 45 million people are paying off their student loans, half of whom owe in excess of $100,000. Being weighed down by student loans is an incredibly daunting position to be in. As a prospective homeowner, you may worry that it isn’t realistic for you to get a new home with that kind of debt.
Thankfully, you can improve your chances of becoming a new homeowner, even though your monthly debt payments may be discouraging you from trying.
Improve Your Credit Score
If you have a low credit score due to lapses in payments and increasing debt, you may not qualify for a mortgage. Regardless of your student loan debt, you can improve your credit score to increase your chance of getting a low mortgage rate.
You can do so by getting ahead of your bills with supplemental income. If you have credit cards that you aren’t using, don’t close them right away. This is because open, unused credit accounts can help your score by increasing your credit utilization ratio.
Sometimes, simply closing a card can lower your score, which translates into higher potential mortgage rates and less chance to qualify.
Calling your credit card company to renegotiate your rates or hiring a third party to help you create a plan to improve your score can indirectly make it easier for you to buy a home.
Use Zero-Sum Budget
When your debts take up a certain percentage of your income (over 50% is the usual cutoff), moneylenders are reluctant to offer you loans. If they don’t think you can take on the responsibility of new loans and payments, they aren’t going to help you qualify to own your house.
A zero-sum budget is a simple solution to fixing your tricky debt-to-income ratio. It means that you allocate your money every month based on last month’s income. The trick is that you allocate every dollar. Your budget should be 0 if you’re doing a zero-sum budget right.
This method helps you learn where every dollar is going and avoid unnecessary expenses that creep up on you. Instead of randomly eating out 3-5 times a week without keeping track, allocate the exact amount of money you’ll spend on eating out per month. This goes for ongoing payments, expenses, and entertainment as well.
Make sure to allocate for savings too. Keeping track of your income improves your budgeting and helps you get on track with your student loan debt.
Sometimes, high interest rates make loan repayment difficult. Instead of gritting your teeth and facing a declining credit score, consider refinancing your loans at a lower interest rate.
By lowering your monthly payments, you can get ahead on your other bills, improve your credit score, and make good on your dream to buy a house.
In recent years, more financial aid has been made available to students. However, many colleges have also hiked their tuition fees accordingly. As a result, almost everyone who attends college in the U.S. will leave with some amount of debt.
When you are trying to buy a new home, having student debt can make it seem as if getting a suitable mortgage rate is an unattainable goal.
We hope that these simple steps will get you on the right track to financial independence. Simply put, investing in your education does not mean you can’t buy a home.