Metro Detroit Lender Explains the Challenge of Student Loan Debt When Buying a Home
Unfortunately, student loan debt has made the dream of homeownership seem impossible for many Americans. According to the National Association of Realtors, 45 million people in the United States have student debt. And 20% of them owe over $100,000.
Often those who attend college and earn a degree tend to have jobs with higher incomes, which should offset some of the financial burden of monthly loan payments. So why are so many college graduates being denied home loans?
Debt to Income Ratio
An important consideration in loan eligibility is debt to income ratio. Most conventional loans permit you to use 28% of your income towards housing costs and 36% toward long-term debt, such as student loans. This ratio can be difficult for borrowers to achieve, especially if they have just recently graduated and have entry level incomes.
Lack of Down Payment
With student loans taking up a large portion of people’s paycheck, it may be challenging to set aside any savings for a down payment after paying on the loan and paying rent, utilities and other expenses.
Credit Scores
In addition to not being able to save money, some Americans may find it challenging to pay student loans and housing costs on time, resulting in a lower credit score – a major factor in loan eligibility.
What Can Metro Detroit Buyers Do if They Have Student Loan Debt?
So what’s next for Metro Detroiters? Should they give up on their dream of owning a home?
All though excessive debt may seem like a major barrier to buying a home, there are still many programs that create a path for homeownership. There are zero down payment programs, and loans that are lenient on credit scores and debt to income ratios.
FHA Loans
FHA loans are popular among first time buyers as they have low down payment options AND lenient credit requirements. Borrowers only need to put down 3.5% for a down payment and are required a minimum credit score of 580.
This loan allows you to use 31% of your income towards housing costs and 43% towards housing expenses and long-term debt, such as student loans.
If borrowers fall within the debt to income ratio, this loan is perfect for those who can provide a small down payment but don’t have the best credit score. Do you have a higher credit score but need more assistance with the down payment? Keep reading for more loan options for Metro Detroiters.
Rural Development Loans (USDA Loans)
This loan is unique as one major requirement is the home must be in an eligible “rural” area.
Rural development loans will require a credit score of 640 which is higher than an FHA loan. However this program offers a zero down payment. This loan is perfect for a buyer with a favorable debt to income ratio and credit score, falls within the income limit but lacks the funds for down payment. Or even if buyers have a down payment, take advantage of the 100% financing and use your down payment to put toward student loan debt.
MSHDA Loans
Like Rural development loans, borrowers will need a credit score of at least 640. This program does not have 100 % financing but borrowers can receive up to $7,500 in down payment assistance. Also, borrowers must contribute at least 1% of the sales cost. Household income limits apply and can vary depending on family size and property location.
Learn More: Michigan Down Payment Assistance Programs
Contact Metro Detroit Lender, Julie Krumholz for More Information
Not sure if you qualify for a home loan? Julie Krumholz from Superior National Bank has over 30 years in the mortgage industry and would be happy to answer any of your questions. Contact Julie today by calling: 586-382-5482.
