How Much Debt Is TOO Much?
Posted on February 28, 2020
I get it, I really do.
Student loan debt is becoming one of the biggest factors PREVENTING people from buying a home. 83% of non-homeowners say that student loan debt is preventing them from becoming a homeowner!
When we shared this with them, they changed their minds!
While student loan debt can make it more difficult to be approved for a home loan it is NOT impossible! One of the biggest issues when qualifying for a home loan with student debt is how much that debt affects your DTI(Debt-To-Income) Ratio.
Your DTI Ratio shows a lender how much of your monthly income goes towards your recurring MONTHLY DEBTS. A lender wants to make sure that you can not only handle the monthly obligations you have, but that you could add on a monthly mortgage payment.
DTI = Total MONTHLY Debt Payments
GROSS Monthly Income
Because of this a mortgage lender cares more about your MINIMUM MONTHLY PAYMENT for your student loan debt payment rather than the TOTAL AMOUNT OF THE LOAN. For example, even if you have $100,000 in student loan debt, but your monthly payment is $150, the $150 will be used to calculate your back end DTI Ratio rather than the total $100,000 due.
Even if your monthly student loan debt payment is high a lender may be able to help you figure out your NEXT STEPS such as refinancing or consolidating your student loans in order to have a LOWER monthly payment or utilizing several first time homebuyer programs which allow for a HIGHER DTI Ratio and can even provide DOWN PAYMENT assistance.
Did we change your mind?