Financial Assistance Programs

You went to college, possibly even graduate school, and landed a job. Since then, you’ve been steadily employed, bringing home a decent paycheck. A generation or two ago, the natural next step would have been to settle down and buy your first home.

But now? That path is not as certain. According to a 2017 survey from the National Association of Realtors (NAR), 80 percent of millennials don’t own a home. “Of those who don’t own a home, 83 percent state that student loan debt is preventing them from purchasing a home,” explains Jessica Lautz, managing director of survey research and communications for NAR and a co-author of the study.

Part of the problem is that student loan debt impacts your debt-to-income ratio, which is the percentage of monthly income allocated to debts like mortgages, credit cards, student loans, or auto loans. A high debt load in comparison to your income can reduce your appeal to lenders, making it less likely for you to be approved for a mortgage loan.

YOU CAN STILL GET A MORTGAGE:

If you’re burdened with student debt, it doesn’t mean a mortgage is out of reach. You need to be mindful of your options. Enhancing your financial profile is a crucial step toward achieving homeownership.

“One effective strategy is to pay off some other debts,” suggests Dave Mele, president of Homes.com.

Starting with that high-interest credit card balance is a great way to go, Mele advises. If cash flow is tight, consider refinancing your other loans to lower your monthly payments.

“It’s important for potential homeowners to remember that lenders focus on your monthly debt commitments, not just the total amount of debt. If you can reduce the monthly obligations you have to cover your debt commitments through refinancing your loans or paying off a credit card or two, this can be beneficial,” says John Moffatt, head of loan originations at Better Mortgage.

Additionally, a study by Bankrate found that 61% of millennials do not own a home, with nearly a quarter attributing this to student loan debt. To address this challenge, they offer mortgage assistance programs and outline the requirements for each, along with six financial steps to enhance the chances of getting approved for a mortgage. You can find more information here: https://www.bankrate.com/finance/mortgages/student-loan-debt-and-afford-mortgage.aspx.

CONSIDER GOVERNMENT HELP:

If you have federal student loans, you might want to look into an income-driven repayment plan. This option can reduce your monthly payments to a percentage of your discretionary income, offering significant relief for those whose income is largely consumed by high loan payments.

Lower monthly student loan payments can improve that crucial debt-to-income ratio. In April 2017, Fannie Mae introduced three new policies designed to make homeownership more attainable for those with student debt. These policies include:

- Student Loan Cash-Out Refinance: Allows homeowners to pay off high-interest student debt while potentially refinancing to a lower mortgage rate.

- Debt Paid by Others: Excludes from the borrower’s debt-to-income ratio any non-mortgage debt, such as credit cards, auto loans, and student loans, that is paid by someone else.

- Student Debt Payment Calculation: Permits lenders to use student loan payment information on credit reports, increasing the likelihood for borrowers with student loan debt to qualify for a mortgage.

OTHER OPTIONS:

If government options aren’t suitable for your situation, consider refinancing your student loan through a private lender. You might discover a better interest rate than your current one. Alternatively, seek out a mortgage lender that takes non-traditional payment sources into account when assessing your overall profile. Some contemporary mortgage lenders may even accept higher debt-to-income ratios than average based on the applicant’s circumstances.

NAR’s Lautz also recommends a practical approach for those with student loans aiming for homeownership. “Sometimes they delay their home purchase because it takes more time to save. Alternatively, they may have to compromise on location or consider a home that requires renovation,” Lautz notes.