The fact of the matter is this: student loan debt is one of the biggest challenges people will face when buying a home. This is becoming more painfully obvious every year. And Millennials, like myself, are shouldering the overwhelming brunt of those student loans. If you’re in, or soon will be in, a similar situation then it’s important to know what the best options are. Because don’t let anyone tell you differently, purchasing a home really is an important step for your financial future. But to state the obvious, affording a home with student loans is not always an easy task. Moreover, getting approved for a home loan in the first place can be a significant hurdle.
So what can you do?
Let’s Start From The Top:
The vast, vast majority of people need to take out home loans to purchase a house. But who you get your home loan from can make a vital difference. If you work with the “wrong” lender, or the “wrong” loan program, then student loan debt really can overwhelm your financial options. It can literally prevent a person with large student loan debts from buying a house for, maybe, 5 years…even a full decade! It can have a life changing impact.
So Here’s What’s Important To Understand:
Many loan programs, and respectively many lenders, can be punishing on student loan debt. Here’s an example to help me explain. Let’s say you have a $100,000 student loan, which is not uncommon in 2017. Even if that loan is in deferral, or even if you have a zero payment reflected on your credit report…many (if not most) loan programs will still hit you for 1% of that balance in your debt to income ratios. That 1% could realistically make you go from qualifying for a $300,000-$400,000 home, to not being able to qualify for anything above $150,000. And that price point my friends, is a no-go in this market.
This example helps show you why it’s critical to work with the right lender, who understands how to navigate student loan issues. So now we know the potential consequences. But what’s the best strategy to avoid a qualifying nightmare like the one above? I’ve got 3 words for you…
Income Based Repayment (IBR)
Some lenders, like Eagle Home Mortgage, have specialized programs that will recognize income based repayments. Here’s why that’s such a big deal. Almost anyone who has federal student loans can, and often will, qualify for the federal IBR program. Once in this program, your monthly payment on a $100,000 student loan debt will change dramatically! Your monthly payment could realistically go from – maybe – $1,000 per month, to under $100 a month! The loan officer I work with, Vince Kingston, has 13 years experience and told me that he’s seen payments drop to $75, even $50 a month.
Now you can see how using the right loan program can completely change your financial path. Dealing with a monthly payment of $1,000 for your student loan debt is hard enough. Add a mortgage payment on top of that, and you’ve essentially been priced out of buying a home any time soon. It could easily be the 5-10 years I mentioned at the top of this article before affording a home becomes a realistic option. Not to mention, housing prices and interest rates are all but guaranteed to go up in the meantime. Being able to buy now can save you a ton of money and stress in the long run.
The Moral of The Story
Hopefully this has helped you gain a better understanding for how loan programs can affect your long term financial outlook. 1% here or there can swing the financial pendulum quite a lot. Because we’re not talking about 1% of $100. We’re talking about hundreds of thousands of dollars, over decades. Every bit of advantage you can get on your student loan and on your home loan, can (and will) add up to something powerful in the end.
And one final thing as the cherry on top. IBR programs can even be combined with some other home loan programs! That will take your home loan game to ninja levels. Programs like The Oregon Bond, The MCC Tax Credit, as well as HomeReady & Home Possible — can be combined with IBR. Go check them out! And of course, give Vince Kingston a call for expert advice on all of this. He can tell you exactly how to get started on the path to maximizing your financial future!