How To Strategically Qualify For a Mortgage

Even With Student Loan Debt

September, 2018
Vince Kingston Mortgage Advisor Eagle Home Mortgage
Do you have a pile of student loans with your name on it?

Do you feel nauseous when thinking about buying a home with 5- or 6-figures of student loan debt?

We hear you.  And we’re here to help too.

There are options & strategies out there that can specifically address your student loan worries.  But many mortgage lenders don’t offer them! We do.  And we’d love to help you reach your goal of homeownership.  Let me show you how…

We Love Helping Buyers In Tough Situations

As you may have gleaned from some of our other blog posts, and across our website, we LOVE first-time homebuyers.  It’s without a doubt, the demographic we serve best.  And unsurprisingly these days, a lot of first-time homebuyers have student loans.

Many first-time buyers (with or without student loan debt) also need down payment assistance, to help make homeownership more affordable.  We love helping these kinds of homebuyers; it’s exactly what we do best. Now, let me tell you why qualifying for a mortgage with student loan debt doesn’t have to be so hard.

But first…start by submitting a Pre-Approval Application. This will give us the info we need to help you create a home loan plan.  Our new online pre-approval process is faster & easier than ever before.

More Student Loans, More Problems?

Here is what’s important to understand about student loan debt.

Debt has a magnified effect on your qualifying ability — in other words — it drastically affects the size of the home loan you’re eligible for. Debt and specifically student loan debt, because of the sheer size of student loans these days, can seriously diminish a person’s ability to qualify for a mortgage.

If you have $100,000 in student loans…that doesn’t mean you’re going to qualify for $100,000 less than someone without educational debts (keeping all other factors the same).  Often times that $100k in student loans equates closer to $200k in diminished qualifying power.  That’s a devasting result for many prospective homebuyers!

EXAMPLE:  Under some loan programs (and with some lenders), if you take a homebuyer that makes $60,000 a year but has no debts, that person would probably qualify for approx. a $400,000 home purchase.   But now give that same person ONE $100,000 student loan debt.  That could easily result in the person qualifying for nothing more than a $200,000 purchase price.

Student Loans Debt Infographic from NAR
This example, hopefully, helps you understand exactly how (negatively) powerful debt can be on a person when applying for a mortgage. That $200,000 reduction in qualifying ability essentially equates to that person not becoming a homeowner in Portland, Oregon.  At least not in the near future. Portland’s housing market has driven $200,000 move-in ready homes to the verge of extinction.

But what is even more sad about the student loan situation is that these large loans are almost always paid off slowly.  Very slowly.  Over the course of 10, 15, or even 20 years.

So, unfortunately, after a full year of paying down a loan…you may have only paid off 5% of the total amount.  That 5% reduction does very little to improve your ability to qualify.

This all adds up to the painful realization that student loan debt could bar people from homeownership for YEARS!

How To Fight Back & Reach Homeownership

You now know how a bit more about how debt affects your ability to qualify for a mortgage.  But now let’s talk about how you can fight back against the debt monster.

Here’s the #1 lesson you should leave this article with:

Anyone with federal student loans can apply for what’s called “Income Based Repayment“, also known as, IBR.

IBR is essentially what the name suggests; the required monthly student loan payment will drastically change to more accurately reflect your current income.  So instead of paying whatever they say you should pay, you’ll now be paying an amount that truly aligns to your monthly income.

As a real-world example, not long ago I had a client who’s monthly payment was approximately $1000 per month before IBR.  After IBR kicked in, their monthly student loan payment plummeted to about $80 per monthSeriously.

(But this is just an example, and your results will vary.)

Buuuut, here’s the most important part of IBR, in terms of qualifying for a mortgage.  Your new, lower monthly IBR payment is now your main qualifying factor — rather than being handcuffed to the entire loan amount, which inevitably scares off most home loan lenders.

So, step #1 is to apply for IBR.  Once you have your IBR documentation, you can hand it off to us (your lender) and we will re-score your credit report on your behalf.

Once that’s complete, we can take a completely fresh look at your qualifying situation.

When all is said and done, you’ll have a lower monthly student loan payment and you’ll have a fraction of the debt liability that you previously had.  Lenders won’t run for the hills anymore.


It’s Time For Your Victory Dance

Ultimately this could make all the difference for you.  Instead of not being a homeowner for the next 3, 5, 7+ years.  Now you could qualify for an amount that can actually get you into a home in Portland, Oregon sometime soon.

Instead of continuing to pay rent, which means not creating any equity wealth for years.  To potentially earning 5- or 6-figures in home equity.  That equity could end up being one of the best and only ways you’ll be able to pay off your student loans any time soon!

If you want to learn more about the IBR process, all the pros & cons, please give me a call.  I’d love to give you my honest advice and help decide the right strategy for you. Or take action now by clicking on the button below to start the Pre-Approval process.
Submitting a Pre-Approval Application is the best way to determine exactly what plan will work best for you.  Plus you’ll find out which homebuyer programs will offer you the most value for your specific situation. In the end, I just want you to remember that not all lenders are created equally. We specialize in these strategies — others don’t.
Make sure you know & explore all of your homebuying options, it can make a huge difference in your financial future. Contact me today, let’s make a plan for you!

Check Out Other Recent Blog Posts:

100% USDA Financing – Homebuyer Program
The MCC Tax Credit: What You Need To Know
The Best Homebuyer Programs in Portland, Oregon