Student Loan Debt? You Can Still Buy a Home, No Problem!

Student Loan Debt-You Can Still Buy a Home No Problem- 150x150Having children and owning your own home is the classic American dream. Nowadays, there are plenty of obstacles that will stand between you and home ownership, one of the biggest being your student loan. Many student loans are comparable with the cost of a modest home, making it pretty difficult for a recent college graduate to become a home owner. Fortunately, there are some things that the young home buyer, who has recently received his or her degree, can do in order to buy a home before paying off that hefty student loan.

How Do Lenders Determine If You Qualify for a Mortgage?

Most lenders usually look no further than a mortgage applicant’s debt-to-income ratio. Before the recent economic recession, lenders were more lenient with home buyers who had student loans, but the housing market crisis has caused them to tighten debt-to-income requirements, in order to make sure that borrowers are able to pay back their mortgage loans. This, of course, was bad news for most recent college graduates, because having a good debt-to-income ratio with a student loan still being repaid is hard enough as it is.

When analyzing a borrower’s debt-to-income ratio to determine if they qualify for a mortgage loan, lenders typically review the front-end and the back-end debt ratios. The front-end ratio is related to the home buyer’s housing expenses, such as the principal, interest and tax, while the back-end ratio is related to other long-term debt that the borrower might have.

The student debt will, of course, be taken into account, and will affect the borrower in different ways depending on each person’s situation. For example, a single person with a student debt will have little chance of receiving a mortgage loan, a household with two debtors might encounter some difficulty when applying for a mortgage loan, while a household where only one person is in debt will be able to get a mortgage loan much easier.

Becoming a Home Owner with Student Loan Debt

Student life is very different than what you will experience after graduating college. A student’s life usually revolves around studying, mid-terms and parties, so when it is all over, real life might come as a shock, especially because you have to repay the money that you borrowed to pay for your tuition. Big student loans are very burdensome, and entry level jobs often pay just enough for you to be able to afford repaying your debt. Student loans can also have an impact on your credit score, so buying a home becomes that much harder. But there’s some good news, as well. By following these following steps, you can stop student loans from being such a burden, and get yourself on the right path to home ownership.

  • Minimize your student loans. Student loans are designed to help you pay for your tuition and receive the proper education that will later help you secure a good job. Student loans should not be used to pay for vacations or the cost of going out to restaurants or movies. Besides carefully planning your budget, you can also reduce your student loan by working part time or applying for financial aid. Don’t be fooled into believing that you will be able to easily pay off your debt after graduating, and that you can have fun spending a lot of money during college. Before you know it, the fun times are over, and you will find yourself having to face the harsh realities of life, so carefully budgeting and cutting unnecessary expenses is a sure way of making your student loan smaller.
  • Reduce your student loan debt. You may encounter some difficulty in finding a good job right after graduating college, so you should know that you have some options regarding your student loan. One option would be to call your lender and try negotiating your loan or your interest rate. Another option would be to extend your repayments, or even put a hold on your loan payments for a while, until your financial situation improves. Of course, these options will most likely result in having to pay a larger interest rate, so a proper analysis of your budget and future plans is required.
  • Avoid creating new debt. Taking out a new loan or applying for a new credit card while you are planning to buy a home will severely impact your chances of receiving a mortgage loan.
  • Keep making payments on your student loan. The only way to eliminate your debt is by paying it off, month by month, as agreed. Make paying off your student loan a priority and pay even more than the minimum payment required if you can afford it.
  • Find a co-signer for the mortgage loan. Having a co-signer in your situation will help you qualify for a mortgage loan much easier. One of your parents or a relative can co-sign your mortgage loan, which will make them responsible in case you are not able to make your monthly payments anymore.

Buying a home while still paying off your student loan is not as easy as it used to be, but it’s far from impossible. By simply making regular payments on your student loan, you are already at an advantage in the eyes of most lenders. However, before applying for a mortgage you should sit down and have a serious look at your budget and future outlook. Make sure that you will be able to pay off both student and mortgage loans at the same time, as missing only a few payments can have a deep negative impact on your life, and ruin your financial situation for years to come.

 

5 Tips to Protect Your Mortgage from Default or Worse

5 Tips to Protect Your Mortgage from Default or Worse- 150x150Becoming a home owner is expensive and takes a lot of work, but most people don’t realize that, once you have bought a home, you will, most likely, have to work even harder to keep it. Owning a home is significantly different than renting and, while it brings a lot more satisfaction, it is also more expensive. The habits that allowed you to transition from renting to owning will have to be kept up if you want to avoid default and losing your home.

Many times, things that will be out of your control will happen, and you will be in danger of losing your home, but there are also plenty of things that you can do to avoid that. Giving up your home is a nightmare and downright depressing, and you will want to avoid that at all cost. The good news is that, even when you are in danger of losing your home, you have options. Following the tips listed in this article will save you from having to endure a painful mortgage default.

What is a Mortgage Default and What Does it Entail?

Mortgage default happens when a borrower is late on a monthly mortgage loan payment or is unable to make mortgage payments anymore. Other actions which break the mortgage agreement, such as not paying property taxes, may also lead to mortgage default. The default allows the lender to foreclose on the mortgage home, in which case the home owner will most likely lose the ownership.

Mortgage default normally happens after the borrower is 30 to 60 days late on his mortgage payments, or when the borrower fails to pay the property taxes within 30 days after he or she was notified by the lender and asked to remedy the situation. In order to better understand when default happens in your case, you should carefully examine your mortgage documents, because the rules will be different from one lender to another.

Tips to Protect Yourself from a Mortgage Default

Trouble with your mortgage can start with just one missed payment, but it’s usually all downhill from there. The best way to avoid this kind of trouble is to plan ahead. Mortgage payments are, most likely, your largest monthly bill, so recovering after one missed payment is really hard. Here are a few tips that will help you avoid being late or missing mortgage payments:

  1. Keep savings. Saving when you have to pay off a mortgage loan is very difficult, but it is not impossible. Examining your monthly budget and cutting out unnecessary expenses, such as going out to eat or impulsive spending, can go a long way when it comes to saving money. Having even a few thousands saved up can be a real blessing if you have trouble making a monthly mortgage payment.
  2. Make the monthly payments. Having a plan in place and making timely monthly mortgage payments is the easiest way of avoiding mortgage default, but that might not always be possible. If something unforeseen happens and you are not able to make that month’s payment, pay what you can and call your lender to explain the situation and discuss options. You would be amazed at what a simple phone call can do to help you avoid getting into more trouble with your lender.
  3. Talk to your lender as soon as you have a problem paying your mortgage. Don’t wait until the monthly payment is due, you receive a notice or, even worse, go into foreclosure. Call your lender as soon as you see signs of financial trouble, explain the situation, and work with them to find a solution. As long as you are able to recover, your lender will most likely present you with a few alternatives, which will save you from default. Default and foreclosure are complicated and expensive processes for your lender, as well, and he will prefer to have you get back on track with your mortgage, than spend more money getting you out of your home.
  4. Understand the process. It may take up to 6 months until you will actually have to leave your home, so that gives you plenty of time to examine your options and take action. Panicking is the worst thing you can do, so the best thing to do is to talk to a professional and try to work something out, so your home won’t have to go into foreclosure.
  5. Consider refinancing. By refinancing, you will be paying your remaining mortgage loan by taking out a new loan. Refinancing is a good way of avoiding mortgage default, but you can also end up with higher monthly payments, so do your homework before you consider this option. Mortgage refinancing can also be an expensive process, a fact which must be taken into consideration when comparing the amount that you have left on your original loan to the new loan.

Mortgage default and losing your home can best be avoided by planning ahead and saving some money. Unfortunately, that is not an option for many home owners, so following these steps and acting before it is too late can protect you and your family from the risk of default and ending up having to give up your home.