Tag Archive for: down payment

Can I Qualify for a Mortgage With Student Loan Debt?

May 11, 2022
mortgage blog, student loan debt, graduation

Graduation season is here! For many college graduates, student loan debt can turn into long-term financial stress. Even years after graduation, student loan debt can keep people from realizing dreams of homeownership. Add the recent economic shifts and inflation, and buying a house right now might feel downright impossible. This article can help bring some good news and help you make a plan.

If you’re getting ready to buy a house for the first time, but you’re worried about how your student loan debt will affect your mortgage, keep reading. A steady job and a good handle on your monthly expenses will take you farther than you think, especially if you’re a first-time homeowner. 

One of the best moves you can make is to lock in your rate today by getting pre-approved, which we blogged about here.

How to Buy a House With Student Loan Debt

This article will explain how student loans affect your home loan eligibility and how to qualify for a mortgage. Specifically, how to apply for a mortgage and get a home loan while you’re still paying off your student debt. 

A great first step is to connect with a mortgage advisor. You’ll be able to get personalized advice about your situation and find out about custom mortgage options. Start here to find a local advisor.

Three Factors That Affect Your Eligibility When You Apply for a Mortgage

#1 Debt to Income Ratio (DTI)

Your debt-to-income ratio impacts your buying power the most. Lenders compare your gross monthly income against your monthly debt obligations to determine how much you can afford to borrow. A DTI ratio higher than 43% can make it difficult to qualify. But there are select options for borrowers with student loan debt.

#2 Credit Score

A good credit score will get you a better home loan and a lower mortgage rate. But there are also special programs available for first-time homebuyers who have a lower credit score.

It’s always a good idea to download a free copy of your credit report. This will allow you to fix any errors, dispute incorrect information, and know your credit score.

#3 Down Payment

A larger down payment can often lock in a better rate and a more affordable mortgage payment. Ask your mortgage advisor about using investment stocks, retirement funds, gift funds, or borrowing from other sources.

Related: How to FAST TRACK your mortgage pre-approval

Best Home Loan Options for Homebuyers With Student Loan Debt

Related: Does every mortgage need an escrow account?

How Debt-to-Income Ratios Affect a Mortgage Application

When you apply for a mortgage, your debt-to-income ratio directly impacts your eligibility, your rate, and your loan terms.

Why? Lenders compare your total monthly income with monthly debt repayments to determine how much you can afford. For this reason, it can be difficult to qualify if your monthly debt payments are higher than 40% of your pre-tax income.

This is where student loan payments make a significant impact.

Student loan payments are automatically included in your monthly debt balance, so they directly affect how much you can afford for a home loan. Since there are different student loan repayment programs, the structure of your specific student loan payment plan can make a big difference.

First, let’s look at how debt-to-income ratios are calculated. Then you can decide whether or not it’s a smart idea to restructure your student loan debt.

How to Calculate Your Debt-to-Income Ratio (DTI)

Figuring out your debt-to-income ratio (DTI) is easy.

First, write down your gross monthly income, then list all your recurring monthly payments.

Leave out expenses that vary each month, such as utility bills, entertainment, groceries, transportation, etc.

To calculate your DTI, combine your required monthly payments such as:

  •  Monthly rent or mortgage payment
  •  Student loan payment
  •  Minimum credit card payment
  •  Monthly car payment
  •  Any court-ordered payments (child support, back taxes, etc.)

Related: Boost your credit score in less than 60 days

Example: Calculating Your Debt-to-Income Ratio with Student Loans

For example, if your gross monthly income is $6,000, 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan.

Next, it’s time to subtract your monthly debt repayments. For example:

  • Monthly car payment = $200
  • Credit card payment = $135
  • Student loan payment = $250

In this scenario, your monthly debt repayment would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

There are several loan options and custom mortgages available. Many home loans for first-time homebuyers offer home loans with 0-5% down. FHA loans only require a 3.5% down payment. Conventional 97 requires only a 3% down payment.

How Different Student Loan Repayment Programs Affect Your Mortgage Application

Finally, restructuring your student loans can help lower your debt-to-income ratio and be a better option than paying off your student loans.

Why? To apply for a mortgage, you’ll want to have a down payment ready as well as emergency funds. So you don’t want to deplete your savings to pay off your student loans.

If your monthly student loan payment is high, you might consider restructuring your student loan debt to lower your monthly payment. This will help lower your DTI.

Contact your student loan program and ask about the following options:

  •  standard repayment plan
  •  deferred student loan
  •  income-driven payment plan
  •  graduated payment plan

Don’t Let Student Loans Keep You From Buying a House

Buying your first home might be closer than you think, even while you’re paying off student loans. And several loan programs can work to your advantage, especially for first-time homebuyers.

Plan for your down payment, find out your credit score and calculate your debt-to-income ratio. Once you have a clear financial picture, you can consider restructuring your student debt to lower your DTI ratio.

Taking Action

Working with a local mortgage advisor can help you compare your best mortgage options, lock in the lowest mortgage rate, and secure the best home loan that fits your life goals. Even with student debt. Connect with a local mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.

Can a Co-Signer Help Me Get a Better Mortgage?

August 31, 2022
mortgage blog, cosigner, preferred rate

Mortgage rate increases have begun slowing down but there’s no getting around the fact that 3% mortgage rates are well in the rearview mirror. Higher mortgage rates turn into higher mortgage payments and for a lot of homebuyers, this means they can no longer afford houses with a higher price tag. Especially for first-time homebuyers who have been saving diligently over the past few years, watching mortgage rates rise can be discouraging. Asking a family member or friend to be a co-signer on a mortgage application could help you qualify for a better home loan.

If you’re ready to buy a home but the mortgage rates are pushing up faster than your savings account, a co-signer might be worth considering. A co-signer can help you meet some of the requirements for a home loan and may help you qualify faster. That said, having a co-signer on your mortgage isn’t always the best choice and there are a few restrictions to keep in mind.

This article can help.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score.

A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to your mortgage application could help you get approved faster and secure better terms on your home loan.

In many cases, adding a co-signer to a mortgage application can help push your mortgage approval across the finish line, but it’s not a guarantee.

For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or if the lender considers the homebuyer a high risk, adding a cosigner typically won’t sway the lender’s decision.

Connect with a local mortgage advisor to talk through your specific situation. You might be closer than you think to a great mortgage and the keys to your dream home.

Related: How to boost your credit score in 60 days

TOP 3 BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. A co-signer can help you meet the credit score requirements.

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The typical mortgage lender will look at your mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed.

If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender. More importantly, it increases your chance to secure a great mortgage.

2. A co-signer can provide support to help you meet employment criteria.

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. A co-signer may help you qualify for a larger home loan.

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, an individual borrower will only qualify if they have the independent resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended period of time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE APPLICATION CAN’T DO 

A co-signer cannot make the minimum down payment on your behalf.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot improve your debt-to-income (DTI) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, and student loans and measuring the total debt against your income.

Therefore, even if your cosigner has ample assets and minimal debt, the main borrower must meet the loan requirement with a DTI ratio of less than 43%.

A co-signer cannot override or erase your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

Are there risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. For the most part, the co-signer takes on more risk than the designated borrower. This is because the cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off.

For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonably possible. The best option is to refinance the mortgage as soon as the homeowner can qualify for their own mortgage.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Taking Action

One of the best first steps you can take is to start your mortgage application. Once you’ve started the process, talk with your mortgage advisor about adding a co-signer. Adding a co-signer to a mortgage application can be a difficult decision but it may help you qualify for a better mortgage. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for a preferred home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Should You Have a Co-Signer on a Mortgage?

October 12, 2021
blog signature, mortgage blog, preferred rate

Adding a co-signer on a mortgage application could help you qualify for a better home loan. Mortgage rates are still low and no one knows how long it will last. If you’re ready to buy a home but in a tough financial position, you may have considered applying for a mortgage with a co-signer. A co-signer can help you meet some of the requirements for a home loan, but not all of them.

When is a co-signer a good idea for a mortgage?

In general, most homebuyers benefit from a co-signer when they need a boost with their income, employment history, or credit score. A good fit for a co-signer will be a person with a high credit score, steady income, stable employment history, and solid credit history. If you’re falling short in any of these four areas, then adding a co-signer to a mortgage application could help you get approved and secure better loan terms.

In many cases, adding a co-signer to a mortgage can help push your mortgage application across the finish line, but it won’t make up for everything. For example, if a mortgage applicant doesn’t have the means to pay back the mortgage or is considered too high risk by the lender, adding a cosigner typically won’t sway the lender’s decision.

Related: How to boost your credit score in 60 days

TOP BENEFITS TO HAVING A CO-SIGNER ON A MORTGAGE

1. Provide flexibility with credit score requirements

In general, a cosigner will not be able to override negative marks in your credit history, such as bankruptcy or loan defaults. But a cosigner with a strong credit history can give your credit profile a bit of a bump if you land in the medium range. The mortgage lender is looking at the mortgage application in its entirety to determine risk and decide if you’ll be able to pay back the loan as agreed. If your credit score is in the midrange and you have a cosigner with a strong credit history, this reduces risk in the eyes of the mortgage lender.

2. Provide backup with employment requirements

If you have good employment but a short employment history, a cosigner with stable long-term employment can help you qualify for a preferred mortgage. In many cases, borrowers just beginning their career or starting a new career path might have a good employment profile, but it isn’t steady enough for the best mortgage. A co-signer can help boost your profile in this area.

Related: How to Qualify for a Mortgage if You’re Self-Employed

3. Opportunity for a larger home loan

To qualify for a mortgage with a co-signer, the mortgage lender considers both incomes. For this reason, you might be able to qualify for a bigger home (and a better loan) by having a co-signer on your mortgage application. The co-signer will be responsible if the borrower defaults, so verifiable income for both parties is an important factor. That said, a borrower will only qualify if they have the resources to pay back the loan as agreed. Ultimately, the mortgage lender will decide the level of risk and whether or not they approve the mortgage application.

Who can qualify as a co-signer on a mortgage application?

To be eligible as a co-signer, the individual must be a family member close to the borrower. Family members such as parents, siblings, grandparents, aunts and uncles all qualify by definition. Family-type relationships are also eligible for a cosigner on a mortgage. For example, friends in this category would be someone you’ve had a close, long-term relationship with for most of your life, or someone you’ve lived with for an extended time.  

This requirement is in place to protect the borrower from having a cosigner who has divided interests. For instance, a real estate agent or a builder might want to be a cosigner since they would directly benefit if your mortgage application is approved. For this reason, non-family members are not eligible to cosign a mortgage.

Related: Buying a House With a Friend or Relative–Everything You Need to Know

3 THINGS A CO-SIGNER ON A MORTGAGE CAN’T DO 

A co-signer cannot make the required down payment.

The homebuyer must meet the minimum requirements for making the down payment, typically 5% for most home loans. Fannie Mae sets this guideline, which requires that the home must be the borrower’s primary residence, and the loan-to-value ratio cannot exceed 95%. The cosigner can increase the down payment, but the resident borrower must provide the minimum down payment required.

A co-signer cannot change your DTI (debt-to-income) ratio.

The homebuyer must meet the minimum requirements set by the lender for the DTI ratio. In most cases, mortgage lenders allow borrower’s a maximum DTI of 43%. This is your debt-to-income ratio. DTI is calculated by combining all recurring debt payments such as credit cards, car loans, student loans and measuring against your income. Therefore, even if your cosigner has ample assets and low debt, the residential borrower must meet the loan requirement with a DTI ratio less than 43%.

A co-signer cannot override your credit history.

While a co-signer’s credit history can help boost your mortgage application, it cannot override substantial credit implications such as bankruptcy, foreclosure, or a credit score below 580. If you have a credit score in the mid-range, check out our recent post on how to boost your credit score in 60 days.

What are the risks to having a co-signer on a mortgage?

Deciding to ask a family member to cosign on a mortgage is a serious decision. The cosigner will be legally responsible for the mortgage, along with the borrower, until the mortgage is paid off. For this reason, the borrower should make every attempt to remove the cosigner from the mortgage as soon as reasonable. The best option is to refinance the mortgage as soon as they can qualify.

In addition, the mortgage will be reflected on the cosigner’s credit report. As such, it will affect their buying power for future opportunities. Finally, late payments will be reflected on the credit reports for both the borrower and the cosigner as well. Download a free copy of your credit report here.

An important note–if the borrower defaults on the mortgage, the cosigner will be legally responsible for paying the loan obligations in full. If the cosigner isn’t on the title of the property (which is often the case), they will have to meet the financial obligation with their own assets.

Next Steps

Adding a co-signer to a mortgage application can be a difficult decision. We can guide you through the process and help you determine if a co-signer on your mortgage will help you qualify for home loan. Either way, discussing your options can give you a jump start on your mortgage goals. Connect with a local mortgage advisor to get started. We’d love to help.

Jumbo Loans and New Conforming Limits for 2022


December 14, 2021
mortgage blog, jumbo loan, conforming limits 2022, preferred rate

The Federal Housing Finance Agency recently announced the new conforming loan limits for 2022, which will increase the amount you can borrow without needing to apply for a jumbo loan.

For a single-family home in most of the U.S., the new conforming loan limit has increased to $647,200 and up to $970,800 in areas with a substantially higher cost of living — such as Hawaii, Alaska, Washington D.C. and many high-cost counties throughout California.

Visit the FHFA site here to see the loan limits in every U.S. county.

If you’re looking to purchase a home that goes above conforming limits in your area, consider applying for a jumbo loan. Jumbo loans have stricter criteria to qualify, but a jumbo loan can provide extreme flexibility and make your dream home a reality.

Jumbo loans are available for single-family homes, multi-unit properties, vacation homes, and investment properties. Qualified borrowers will have a low debt-to-income ratio, verified income, a 20% down payment and high credit score.

Jumbo Loans, Conforming Loans, and the FHFA

A conforming loan is often referred to as a “regular mortgage.” Conforming loans fall in a broad category of home loans that meet the mortgage limits set by the FHFA (Federal Housing Finance Agency). Each year, the FHFA adjusts these limits based on a number of economic factors in order to regulate the secondary mortgage market and keep lending practices competitive and efficient.

In short, conforming limits determine the maximum amount homeowners can borrow to purchase a home with a government-backed loan. For example, FHA loans, VA loans, USDA loans are all government-backed home loans.

Related: How to buy a duplex with FHA-financing

When you want to purchase a home above conforming limits, you can apply for a jumbo loan. Jumbo loans aren’t guaranteed by Fannie Mae or Freddie Mac and therefore are considered riskier for lenders. But mortgage lenders are ready and eager to approve jumbo loans for qualified borrowers.

Jumbo loans are also more flexible. Since the FHFA doesn’t limit jumbo loans, mortgage lenders can decide how much risk they’re willing to take with each borrower. So if you have strong credentials, such as a high credit score and a low debt-to-income ratio along with a 20% down payment, you’ll be a good candidate for a jumbo loan.

Related: How to Get A Fast Mortgage Pre-Approval

How to Qualify for a Jumbo Loan in 2022

The criteria are more strict for jumbo loans since the loans are larger. Also, since jumbo loans are government-backed, mortgage lenders assume more risk. As a result, jumbo loans typically have slightly higher mortgage rates and stricter requirements.

High Credit Score

To qualify for a jumbo loan, most borrowers will need a credit score above 700. The higher your score, the better home loan you’ll get. A high credit score will give you the best rate, better loan terms, and the lowest mortgage rate.

Related: How to boost your credit score in less than 60 days

Low Debt-to-Income Ratio

Your debt-to-income ratio is one of the biggest factors that mortgage lenders consider. A low DTI shows the lender that you have the cash flow necessary to afford a big mortgage payment. Also, with a low DTI, the lender can see that you’re not overextended when it comes to debt or other financial obligations.

High Cash Reserves

Jumbo loans typically require at least a 20% down payment. Giving evidence of high cash reserves shows the lender that you won’t be house poor once your mortgage gets approved. In some cases, mortgage lenders want to see that a homebuyer has at least one year’s worth of mortgage payments in cash assets.

Bigger Down Payment

Jumbo loans often require 20-30% down for the best home loan. Some lenders will approve a jumbo loan with only 10% down. In contrast, government-backed conforming home loans such as FHA loans only require 3.5% down, and conventional loans only require 3%.

Formal Home Appraisal

Mortgage lenders will sometimes require a second home appraisal. Home appraisals verify the current market value of the home. Since your home will be the collateral for your mortgage, lenders often want to secure a firm confirmation that the home in question is valued correctly.

Related: What to Expect with Your Next Home Appraisal

What documentation will I need to apply for a jumbo loan?

Applying for a jumbo loan is similar to most home loan applications. Notably, jumbo loans have stricter qualifying requirements. For this reason, make sure you have all the required documentation and that your financial and employment information is verifiable.

Mortgage lenders typically require the following documentation to apply for a jumbo loan:

  • Identification such as a passport or driver’s license
  • Employment verification
  • Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
  • RSU, ESPP shares, or other stock options
  • Tax returns for the past two years 
  • Recent bank statements
  • Investment account statements
  • Down payment source
  • Current credit report

If you’re self-employed, ask your mortgage advisor about additional information that might be required.

RELATED: How to apply for a jumbo mortgage if you’re self-employed

Next Steps

When you’re ready to apply for a jumbo loan, an experienced mortgage advisor can help you get approved, lock in the lowest mortgage rate, and secure the right home loan. Connect with a mortgage advisor to discuss your options and make a plan that can help you save money on your mortgage. We’d love to help.

2022 Jumbo Loans: Get Pre-approved and Lock Your Rate

April 20, 2022
mortgage blog, jumbo loan, pre-approval, preferred rate

Mortgage rates continue to push upwards and housing prices are still at record highs, but the market appears to be slowing down. Realtors say offers are coming in with greater caution and less competition as the season progresses, and jumbo loans are on the rise in high-cost areas. Nevertheless, high purchase prices create a challenge for most homebuyers who are ready to buy a bigger home or refinance a mortgage.

Jumbo loans offer qualified borrowers a mortgage solution to the high-cost dilemma.

Whether your want to refinance or buy a bigger home, getting pre-approved can help you lock in a mortgage rate before they jump again.

Jumbo Loan Limits for 2022

In early 2022, jumbo loan limits increased to $647,200 in most of the U.S. and up to $970,800 in high-cost areas. Why does this matter? Jumbo loan limits put mortgages in two distinct brackets: conforming and non-conforming home loans. Historically, conforming loans offer homebuyers the lowest mortgage rates.

Click here to visit the FHFA site and see the loan limits for every U.S. county.

Right now, jumbo rates are dropping and are even lower than conforming rates in some cases.

Jumbo loans offer freedom and opportunity for homebuyers, especially in areas where the cost of homes is substantially higher. Jumbo loans have stricter criteria to qualify, but a jumbo loan can give you extreme flexibility. And since jumbo loans are conventional home loans, qualified borrowers can use a jumbo loan to purchase single-family homes, multi-unit properties, vacation homes, and investment properties.

How to Qualify for a Jumbo Loan in 2022

Borrower criteria are more strict for jumbo loans. Since jumbo loans are not government-backed, mortgage lenders assume more risk and have stricter approval requirements. A high credit score and low DTI will give you the best mortgage rate and better loan terms.

Qualified borrowers will typically meet the following requirements:

  • High credit score or 680+
  • High cash reserves
  • Large down payment (20% or higher)
  • Low debt-to-income ratio (36% or lower)
  • Verifiable income and employment

Tips to Maximize Verified Income

Most of us can’t flip a switch to increase our income. However, you’ll qualify for a better jumbo loan when you can find ways to verify higher income. Employment is only one aspect of qualified income.

Consider the following revenue streams and be sure to include them if they apply to you:

  • investment gains, interest, and dividends
  • restricted stock units (RSU)
  • employee stock purchase plans (ESPP shares)
  • rental property income
  • business income
  • spousal support and/or child support

How to Lock Your Rate: Fast Track Your Mortgage Pre-approval

When you decide to get pre-approved for a jumbo loan, the mortgage lender does the extra work to verify your income, credit history, and required documentation to get your loan approved fast. If you’re refinancing, getting pre-approved for a jumbo loan can lock in your rate so you don’t hit any surprises during the application process.

If you’re purchasing a new home, getting pre-approved for a jumbo mortgage will lock your rate and give you a pre-approval letter to present with every offer. As a buyer, you’ll be confident knowing that your loan is approved up to the maximum amount designated. What’s more, realtors and sellers will know that you’re a serious buyer who can close fast.

Step 1: Connect with a local mortgage advisor.

First, talk to a mortgage advisor as soon as you think you might be ready for a jumbo loan. A mortgage advisor can start the mortgage pre-approval process and lock in your rate right away.

A local mortgage advisor will understand the unique challenges of the housing market in your specific area and can get move your documentation quickly to underwriting. A mortgage advisor is your greatest asset in the loan process, so be sure to work with someone who understands your goals.

Find a qualified mortgage expert in your local area

Step 2: Download your free credit report.

You can download a free credit report once every 12 months. Know your credit score and check the report to see if any errors need attention. Your credit score will directly impact the terms of your loan and your mortgage rate. By getting a free copy of your credit report early, you can resolve any errors ahead of time.

Click here to download your free credit report

Step 3: Gather required documentation.

An experienced mortgage advisor will provide a checklist to follow, lock in your rate, and get your jumbo loan pre-approved fast.

Start gathering the paperwork you may need to fast-track your jumbo loan pre-approval.

  • Identification such as a passport or driver’s license
  • Employment verification
  • Proof of income (e.g., pay stubs, W-2 statements, bonuses, alimony)
  • RSU, ESPP shares, or other stock options
  • Tax returns for the past two years 
  • Recent bank statements
  • Investment account statements

Ask your mortgage advisor for a quick list to help keep things on track.

Next Steps

Get pre-approved and lock in your mortgage rate now if you’re thinking about a jumbo loan. Getting pre-approved is the best next step, especially in today’s housing market.

An experienced mortgage advisor can help you get approved, lock in the lowest mortgage rate, and secure the right home loan. Connect with a mortgage advisor to discuss your options and save money on your mortgage. We’d love to help.

How Do I Qualify for a Mortgage With Student Loan Debt?

May 26, 2021
blog student loan debt

Student loan debt can cause a lot of financial stress, especially when you’re getting ready to buy a house for the first time. If you’ve got a steady job and a good handle on your monthly expenses, becoming a first-time homeowner is within reach.

So if you feel overwhelmed by your student loans, you’re not alone. A lot of first-time homebuyers wonder how they’ll qualify for a mortgage with student loan debt.

So You Want to Buy a House? Don’t Let Student Loan Debt Stop You.

This article will explain how student loans affect your home loan eligibility and how to qualify for a mortgage. Specifically, how to apply for a mortgage and get a home loan while you’re still paying off your student loan debt.

Let’s dig in.

Three Factors That Affect Your Eligibility When You Apply for a Mortgage

1. Debt to Income Ratio (DTI)

Your debt-to-income ratio impacts your buying power the most. Lenders compare your gross monthly income against your monthly debt obligations to determine how much you can afford to borrow. A DTI ratio higher than 43% can make it difficult to qualify. But there are select options for borrowers with student loan debt.

2. Credit Score

A good credit score will get you a better home loan and a lower mortgage rate. But there are also special programs available for first-time homebuyers who have a lower credit score. Check out your credit report for free here.

3. Down Payment

A larger down payment can often lock in a better rate and a more affordable mortgage payment. Ask your mortgage advisor about using investment stocks, retirement funds, gift funds, or borrowing from other sources.

Home Loan Opportunities for Borrowers With Student Loan Debt

Let’s Talk About Debt-to-Income Ratios and Mortgage Applications

When you apply for a mortgage, your debt-to-income ratio directly impacts your eligibility.

Why? Lenders compare your total monthly income with your monthly debt repayments to determine how much you can afford. If your monthly debt payments are higher than 40% of your pre-tax income, it won’t be easy to qualify.

This is where student loan payments make a significant impact.

Student loan payments are automatically included in your monthly debt balance, so they directly affect how much you can afford for a home loan. Since there are different student loan repayment programs, the structure of your specific student loan payment plan can make a big difference.

First, let’s look at how debt-to-income ratios are calculated. Then you can decide whether or not it’s a smart idea to restructure your student loan debt.

How to Calculate Your Debt-to-Income Ratio (DTI)

Figuring out your debt-to-income ratio (DTI) is easy. Write down your gross monthly income, then make a list of all your recurring monthly payments.

Leave out expenses that vary each month, such as utility bills, entertainment, groceries, transportation, etc.

To calculate your DTI, combine your required monthly payments such as:

  • Monthly rent or mortgage payment
  • Student loan payment
  • Minimum credit card payment
  • Monthly car payment
  • Any court-ordered payments (child support, back taxes, etc.)

Example: Calculating Your Debt-to-Income Ratio with Student Loans

For example, if your gross monthly income is $6,000, then 43% would be $2,580. This is the maximum amount a lender would approve for a monthly mortgage payment for a conventional loan.

Next, it’s time to subtract your monthly debt repayments. For example:

  • Monthly car payment = $200
  • Credit card payment = $135
  • Student loan payment = $250

In this scenario, your monthly debt repayment would be $585. From the lender’s perspective, this means you have $1,995 available to make a monthly mortgage payment ($2,580 – $585 = $1,995.)

Note that your new monthly payment will need to cover your mortgage payment, homeowner’s insurance, property taxes, and mortgage insurance if required.

How Different Student Loan Repayment Programs Affect Your Mortgage Application

Restructuring your student loans can help lower your debt-to-income ratio and be a better option than paying off your student loans.

Why? To apply for a mortgage, you’ll want to have a down payment ready as well as emergency funds. So you don’t want to deplete your savings to pay off your student loans.

If your monthly student loan payment is high, you might consider restructuring your student loan debt so that you can lower your monthly payment. This will help lower your DTI.

Contact the institution that handles your student loan debt and ask about the following options:

  • standard repayment plan
  • deferred student loan
  • income-driven payment plan
  • graduated payment plan

Takeaway: Don’t Let Student Loans Keep You From Buying a House

Buying your first home might be closer than you think, even while you’re paying off student loans. And several loan programs can work to your advantage, especially as a first-time homebuyer.

Plan for your down payment, find out your credit score and calculate your debt-to-income ratio. Once you have a clear financial picture, you can consider restructuring your student debt to lower your DTI ratio.

Next Steps

Working together early on can help navigate your best options. If you’d like to understand how your student loans will impact your mortgage application, let’s connect. We’d love to help.