Qualifying for a Mortgage (Despite Your Unfinished Student Loan)
Carrying a student loan debt lengthens your path to homeownership in the Beehive State. Any mortgage broker in Provo, Utah, or any other community, will attest that it can make you appear a riskier borrower during the underwriting process.
Make no mistake about it: a student loan is not entirely disadvantageous. It can be a tool to bolster your FICO scores by creating a positive payment history, diversifying the types of credit you manage, and increasing the average age of your accounts.
While a student loan debt is a definite roadblock to house affordability, you do not have to pay it off to successfully take out a home loan. Below are the things you can dot improve your credentials and appear more qualified in the eyes of mortgage lenders.
Avoid Delinquency at All Costs
Rule number one is to observe timely student loan repayment. Being late once can be forgivable, but missing the due date multiple times can hurt your credit big time. It will make you seem unprepared for a mortgage.
If you have not done it yet, make an automatic payment. This way, your student loan creditor can draft the money directly from your bank account by the due date, so you do not have to worry about it. As long as you have sufficient funds available every month, you can avoid the risk of forgetting about it and blemishing your otherwise pristine payment history.
Zero Out Your Credit Card Bills
Credit utilization is the second-most influential factor in FICO scoring models. Only credit card accounts impact it, so you should also be mindful of how much you charge on plastic.
Ideally, you should use just 30% of your individual and overall credit card limit. Anywhere higher than done can shave points off your FICO scores.
Stay Away From Any Other Debts
Any lender will be particular about your regular income and current financial obligations to determine your debt-to-income (DTI) ratio. Apart from what you owe on your credit card and what is left on your student loan debt to, they will also add other reported obligations, like a personal loan, into the equation.
Generally, your monthly liabilities (including your estimated mortgage payment) should consume just 43% of your income. Of course, most lenders want to see a lower number to give you a better interest rate and say yes to your loan request.
Use an App for Saving
Saving for a down payment can be a burden if you have to deal with a student loan debt. One of the many strategies you can try to make your bank account greener is using a money-saving app.
Some applications let you tip yourself whenever you did something good while others stash your extra pennies. Some apps allow you to set up goals and make saving feel like a fun game. Each service has its pros and cons, but most, if not all, help aim to eliminate the psychological difficulty of saving money stemming from lack of discipline.
Last but not least, do not go overboard. It is easier to get approved for a mortgage if you are not buying an oversized house. The lower the loan size, the easier it is to meet its down payment requirement.
To say that repaying a student loan is hard is an understatement, but it is not an insurmountable hurdle. If you play your cards right, you can make the most out of the cruel hand you have been dealt with and achieve your dream of being a homeowner sooner rather than later.