By Anne Grobler
Getting a mortgage feels like a faraway dream when you have student loan debt. With so much going out every month just to pay the interest, how can you ever get started on paying for a home? This is a huge barrier for many young college graduates getting onto the property ladder. But it can be done – and here’s how.
Work out your DTI
DTI is your debt to income ratio. This means how much you owe each month compared to your income. If your DTI is more than 36%, you might be struggling to get a mortgage. This is because the bank won’t be confident that you will be able to pay it all off.
So, how can you raise your DTI? One way to do it is to increase your income, quite simply. Another is to reduce your debt. If you are thinking about buying some new furniture or a new car, for example, you might want to hold off until after your move. The money that you owe on those items will go into the debt side.
If you are already paying off something smaller like a couch which will be paid off soon, you can also wait to apply until after the payments have stopped so that your DTI is lower.
Refinance your loan
If your DTI still isn’t working out, consider refinancing your loan. You can do this with a private lender. It may seem like a risk, but it’s fine to do it if you do a lot of research beforehand. Some private lenders will be able to get you a cheaper interest rate, which will give you extra cash you didn’t expect to have. That can also cut down on the time it will take to pay back your loans, which will be a real godsend.
You could also switch it up the other way by extending the life of your loan when you refinance. This will mean that you are making smaller payments each month, which will again lower your DTI. It could mean that you are able to get on the property ladder sooner, which could be a better solution than paying off the loan faster.
Make a bigger investment
Save up for a little longer and you might be able to increase the down payment that you have available. The bigger your down payment, the less cash you will need to take out on your mortgage. That means the bank will be more likely to give you the loan even though your DTI might be higher.
If this is an option for you, start living below your means as soon as possible. Save money wherever you can – living on a tight budget for a year could mean getting your own home sooner than you would ever think possible otherwise.
Look at other options
There are also other ways that you can go through the process. Though it’s not recommended legally, because of the risk involved, you could for example ask your parents to take out a second mortgage. You could arrange to make the payments for them. However, if you do default on the payments, the risk will be on your parents – and they may not be quick to help you again later.
You may also find mortgage programs which are available for local graduates. These usually take the form of down payment assistance, but will help you to get on that ladder sooner. There will always be restrictions for these programs – such as where you are able to get a home – but getting a home in one specific area is better than not getting a home at all.
It’s not at all impossible to get a mortgage whilst also carrying student loan debt. It might take a little extra work, but you can make it happen if you want it.
***Anne Grobler is a communications expert specializing in real estate, currently supporting OpenAgent. She is always happy to share some of her knowledge with others, helping them find and afford their dream homes.