School’s Out for Summer


Have you been thinking about taking that big leap into homeownership? Like many first-time homebuyers, you might find yourself wondering how student loan debt affects your chances of buying a house.

Getting approved for a mortgage is based on three main factors – your down payment, your credit score, and your household income relative to your household debt. 

Let me explain this further.

1. Get pre-approved for a mortgage

Too many people find their home and then get a mortgage.

Switch it around.

Get pre-approved first. Then, you’ll know how much home you can afford.

2. You need to know your credit score and what is being reported to it.

FICO credit scores are among the most frequently used credit scores, and range from 350-800. A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 600 is considered to have poor credit.

To qualify for a mortgage and get a low mortgage rate, your credit score matters.

It is very important that your student loan debt is being reported and if it is not then start asking why.

3. Manage your debt-to-income ratio

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income.  This is an important ratio to determine whether you have enough excess cash to cover your living expenses plus your debt obligations.

Since a debt-to-income ratio has two components (debt and income), the best way to lower your debt-to-income ratio is to:

  • repay existing debt;
  • earn more income; or
  • do both

4. Pay attention to your payments

Being financially responsible is very important when applying for a mortgage.

Your payment history is one of the largest components of your credit score.

FICO scores are weighted more heavily by recent payments so your future matters more than your past.

In particular, make sure to:

  • Pay off the balance if you have a delinquent payment
  • Don’t skip any payments
  • Make all payments on time

5. Keep credit utilization low

Lenders also evaluate your credit card utilization, or your monthly credit card spending as a percentage of your credit limit.

Ideally, your credit utilization should be less than 30%. If you can keep it less than 10%, even better.

For example, if you have a $10,000 credit limit on your credit card and spent $3,000 this month, your credit utilization is 30%.

6. Refinance your student loans

When lenders look at your debt-to-income ratio, they are also looking at your monthly student loan payments.

The most effective way to lower your monthly payments is through student loan refinancing. With a lower interest rate, you can signal to lenders that you are on track to pay off student loans faster. There are student loan refinance lenders who offer interest rates as low as 2.50% – 3.00%, which is substantially lower than federal student loans and in-school private loan interest rates.

Student loan refinancing works with federal student loans, private student loans or both.

At the end of the day I have given you 7 steps here to enhance your possibility of qualifying for a mortgage while you have student loan debt.  Call me at 813-361-6350 let’s get you on the path of owning your first home.

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