What You Need To Know About Student Loan Debt When Buying Homes in Huntsville AL
Student loan debt has grown considerably over the past few years with 69% of the 2018 graduating class having student loans, according to Student Loan Hero. This debt alone will not stop you from buying a home but you do want to manage it properly. Here are things to know when buying a Huntsville AL home with student loan debt.
- Check your credit score.
Actually, checking your credit score is the first step to buying a home with or without student loan debt. You can check your credit score by visiting your bank or credit card company website. Most allow you to check your credit score at no cost. The higher your score the better chance you have of buying a home.
Your next step is to take a look at your credit report that determines your credit score. This can be done free of charge by visiting AnnualCreditReport.com where you can obtain copies of your credit report from all three credit scoring companies, Trans Union, Equifax and Experian.
It is not unusual for there to be mistakes on your credit report, especially if you have a common name like Mary Smith or Bob Jones. You can take care of any inconsistencies by contacting the credit agency and/or the company involved. I'll warn you, this can sometimes be a hassle but worth the effort in the long run.
- Improve your credit score.
If your credit score is not stellar, there are things you can do to improve your credit score when buying a home:
- Pay your bills on time. Lenders don't look favorably on late payments. Paying on time and paying the full amount due each month is key!
- Keep your balances low. Don't max out your credit cards but use as little credit as possible. For example, if you have a credit line of $4,000, only use about $1,000 of this amount to keep the amount of credit you are using low, low, low!
- Don't close old accounts. You would think that closing old accounts that aren't utilized would be a good thing, but not so. Showing long credit that is in good standing can help your credit score.
- Have different types of credit. Having installments loans (car and student loans), as well as revolving loans (credit cards) shows you can manage all kinds of debt.
- Decrease your debt to income ratio.
Most lenders follow the 28/36 qualifying rule. This means that your monthly expenses should be no more than 28% of your monthly income and your total debt (including your new mortgage payment) should be no more than 36%. When buying a home with student loan debt you will want to keep your expenses within these guidelines. If your income/debt ratio high, you might want to consider refinancing your student loan to get your monthly payment down.
- Get pre-approved.
Pre-approval is when a lender reviews your income and credit history and determines the amount of mortgage you qualify for. They will look at a two-year employment history, credit history, income and assets. It is common for sellers to ask for a pre-approval letter from your lender when they consider an offer from a buyer so you will want to have your ducks in a row before you start house hunting.
Getting pre-approved when buying a home with student loan debt also provides you information as to the costs involved in buying a home and how much of a down payment your will need.
Is buying a home with student debt right for you?
Checking your credit score, reviewing your credit report and getting pre-approved by a lender gives you the information you need to decide whether buying a home with student loan debt is right for you. What a lender qualifies you for and what you are comfortable paying on a monthly basis are not always the same thing. What are your priorities? What is most important to you? Does it mean cutting back in other areas to make it happen?
If you decide buying a home with student loan debt is right for you, take the leap and enjoy the American Dream!
If you are thinking of buying or selling a home in the Huntsville area, let professional Realtor Mike Manosky help you with all your real estate needs! Give him a call today at 256-508-0211!