• Elizabeth Listerman

How to Buy A Home with Student Loans

You would think after graduating college that a weight would finally be lifted off your shoulders. Sadly, that is not the case. Now you have entered the world of rejection, job hunting, money-saving, and life-altering decisions that will make or break your bank. For some, it feels as if they will be paying rent for a small studio until the end of time. With student loans being that little devil on your shoulder nagging at you, while the angel is hope for buying a house, a car, and settling down. Ultimately, the little devil wins since it is worth 100,000 dollars in student loan debt. An astronomical amount for anyone who is wanting to settle in their 20’s.

For anyone graduating from college soon or who has graduated. It feels like the world is against you. You graduate with a bachelor’s or masters like everyone told you, to find that you are thousands of dollars in debt with no real job opportunity open to you due to Covid. Now what? Do you keep paying a $1000 a month for a small closet-sized studio that also makes you pay $40 a month on top of that for parking, and another $30 on top of that for your cat to be able to live with you? It’s ridiculous. Renting is not an investment, but sometimes it feels like it is the only choice we have.

You’re not alone in this frustration. College students across the US, more than 44 million, are struggling to stay afloat as they pay back their student loans. Here are a couple tips that can help you as you move on from that renting lifestyle to owning your own home with the weight of student loans heavy on your shoulders.

1. Watch that Credit Score

Credit scores range from 350-800, and of course the higher the better. Lenders use your scores to understand if you would be a risk, as well as to get a mortgage, your credit score must be top-notch. 750 or higher is known to be the top tier of a wonderful credit score, anything below 600 is poor and must be raised immediately.

2. Notice your Debt to Income Ratio

This ratio is your monthly debt payments as a percentage of your monthly income. Lenders will evaluate this ratio to see if you are able to pay for living expenses on top of your debt and to see if your income is enough to be sustainable for you. A couple ways to lower this ratio is to: pay off more debt more often, earn more income, or do both. Easier said than done. Either way, take your time and focus on using your income wisely. This can be done by moving to a cheaper living arrangement—roommates are an option, cutting out eating out, less travel, look for open job opportunities at all times, drop some subscriptions, sell back your textbooks, and anything else that can help you gain money—not lose it.

3. Make all Payments on Time

If you haven’t already, set all your payments to autopay each month before on by the due date. Lenders look at your payment history and determine from there if you are a financially responsible option. Make your payments on time, pay off the full balance when possible, and don’t skip a payment.

4. Pre-approval for a Mortgage

Get pre-approved first. This lets you know how much you can spend on a house before you do so. Thus, saving you money. If you buy a house first, then get a mortgage then it might have been too far out of your budget and now you’re left struggling.

5. Use your Credit Card Less

Your credit card should not be used as often as you think. Only use 10-30% of your credit limit each month. Lenders will evaluate your monthly credit spending and determine if you’re a safe bet. Set up alerts to let you know when you are near the desired amount of usage or pay off your balance multiple times a month.

6. Refinance Student Loans

Lenders will look at your student loan payments to check if you’re on track. A way to lower your monthly student loan payments is by refinancing your loans. This makes it look like you will be paying off your loans faster and more efficiently. There are student loan refinance lenders who offer interest rates as low as 2.50% - 3.00%, which is substantially lower than federal student loans and in-school private loan interest rates.

With these 6 steps, you are on your way to becoming a new homeowner with just a little less stress!


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