Best Ways for Students with Heavy Loan Debt to Buy a Home

Every year, millions of American students graduate from college and enter into the working world. For the most part, having a college degree is a great thing.

For example, the higher the degree a person has, the more likely he is to get a higher paying job.

While there are many benefits to going to college, the problem of student loans remains ever-present. In fact, most new graduates believe that they will be in debt for the rest of their lives, in large part because of their student loans.

But for those looking to purchase a home with loads of student loan debt, never fear! There are ways to go about the process even if you owe tons of money in the form of loans.

Improving Debt-to-Income Ratio

When buying a home, one of the essential steps is the mortgage application process. And when applying for a mortgage, lenders will often closely examine applicants’ debt-to-income ratio.  This measure is exactly as it sounds: it compares how much debt (in student loans, car loans, etc.) you have accumulated to how much you earn each year.

As a new graduate, your debt-to-income ratio is almost always very poor. Recent grads generally have to start their careers in jobs that don’t pay very well and then work their way up the ladder. At the same time, these young workers have to deal with incredible amounts of debt due to college loans.

So, achieving a good debt-to-income ratio is very difficult for these individuals.

Luckily, there are a number of steps a recently grad can take in order to improve his or her DTI. For instance, refinancing loans can help to improve one’s chances of receiving a better mortgage offer. Beyond refinancing, new grads should also attempt to pay off any credit card balances and generally take every step they can to demonstrate that they are responsible and capable of paying back what they owe.

Using Resources Recommended by Fannie Mae

Fannie Mae is the government-backed lending service. This group provides many recommendations and services designed to help homeowners navigate the tricky homebuying process.

For new graduates, Fannie Mae recommends taking steps such as:

  • Having family and friends help pay off debt.
  • Using the student debt payment calculation service.
  • Considering student loan refinance options.

Any or all of these options can go a long way towards easing the burden of student loan debt on new graduates.

Working with a Cosigner

One final option available to new grads is the use of a cosigner on a mortgage loan. This may be a good option for many prospective homebuyers. However, it’s important to understand that it can be very difficult to remove a cosigner from a loan later on down the road. In fact, the only way to achieve this is to refinance the loan, which could cost thousands of dollars.

Conclusion

If you’re newly graduated and hoping to purchase a home, consider working with a mortgage professional. These housing experts can help guide you in the homebuying process and will ensure that you understand all of your available options. Call today!

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