How To Survive Getting A Mortgage With Student Loans | Student Loan Planner


Can you qualify for a mortgage if you have
a lot of student loan debt, and is it even a good idea to buy a house when you’re
owing maybe $100,000 or $200,000 or more in student loan
debt? There’s something very important that you should know. Some of the biggest
lenders out there for mortgage products have changed their underwriting
standards so that they don’t look at your debt. Say it’s $200,000.
What they used to do, is they used to take 1% of that balance and say
“That’s $2,000 a month” and they used to say “This is the amount that
you have to pay on your loans when we’re calculating what you’re gonna qualify
for for a mortgage.” That’s the old way of doing things. The new way of doing things
is looking at your income based repayment number and saying that that is
the required payment that you have to make and not 1% of the balance.
That is a big deal for something kind of technical, called
back end ratio. So your front end ratio is basically, take your housing cost
divided by your monthly income. And that’s your front end ratio. And that
probably needs to be around 25% or something like that, or less.
So for example, if you have a $2,000 a month income, and you
have a $500 a month housing cost, then your front end ratio is 25%. The thing
that can prevent you from getting a mortgage is a student loan borrower, or
something called back end ratio. Back end ratio is your total debt payments
divided by your total monthly income. So, for example, let’s say that you have
$1,000 a month housing payment, a $300 a month car payment, and a $300 a month
student loan payment. That’s $1,600 dollars a month. And let’s say that you have a
$4,000 a month income. Your back end ratio in that case is 40%. Now, you really
want to try to keep that back end ratio below 40%. Let’s say that you have that
huge debt, $200,000, $300,000 of debt,
and you have a back end ratio that’s really high if they use that 1% rule,
right? The $2,000 a month student loan payment added to whatever housing cost
should have added to any car payments you have, could easily put you in a back end
ratio over 40%, which would deny you a mortgage. So that’s why if
you’re trying to get approved for a mortgage, you really want to make sure
that you have adequate emergency funds, first of all. So six months of expenses
in the bank and have no credit card debt, and you also need to have your loans
on an income-driven plan, especially if it’s a very large balance. And you want to be
real careful when you refinance to a five or a seven-year term before buying
a house, because it can sometimes make that back end ratio for qualifying for a
home too large, which could put off your homeownership goals. If you have a lot of
student loan debt and you are getting ready for homeownership, or you’re
thinking about it, we would love to help you. studentloanplanner.com/help to get information or a custom one-on-one
consulting service. And just feel free to leave a comment in the youtube video
below. Share your struggles with getting approved for a mortgage with student loan debt.

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