A recent Bankrate.com survey shows that, even as millennials grow older, 61% of them still don’t own a home. And nearly 25% of them state that the reason is their student loan debt.
This debt makes it harder for millennials to save for a down payment on a home, and it creates a higher debt-to-income (DTI) ratio for the potential home buyers.
DTI is the ratio that lenders use to measure a borrower’s ability to successfully make monthly payments toward their debts.
If you are trying to purchase a home while experiencing student loan debt, here's some steps you can take to help make your dreams of homeownership a reality:
1. Improve Your DTI Ratio
DTI is an important factor for lenders when deciding whether or not to approve your application for a loan. Here’s a few steps you could take to lower your DTI ratio:
- Pay down current debts — Do it as often and as much as possible! Not only will your DTI improve, but you’ll be closer to being debt-free.
- Refinance your student loans — This could also lower your monthly payments at the same time.
- Enroll in an income-based repayment plan — This will make sure that your monthly payments are aligned with your income level, allowing you to pay less each month.
2. Increase Your Credit Score
A higher credit score leads to an easier mortgage approval process and a lower interest rate on your loan. Here are some tips on how to raise your credit score:
To find out more on where to safely get your credit report, click here.
3. Consider Down Payment Assistance and First-Time Home Buyer Programs
Saving up for a down payment is one of the biggest hurdles to buying a home. Here are some programs that help with both the down payment and closing costs on a home:
Other Steps You Can Take
- Get pre-approved before house hunting —Getting pre-approved for a mortgage will help you know the loan amount you’d qualify for and help you find a dream home within budget.
- Find someone to co-borrow or co-sign your mortgage — Having another person’s income and credit history factor into your mortgage application could potentially help boost your loan balance and lower your interest rate. Your co-borrowers get ownership rights, but co-signers typically do not and are only there to guarantee that loan payments are made on-time.
If you’d like to start the process of buying a home, we recommend visiting our “10 Steps to Homeownership” guide, which gives you a bird’s-eye view of the homebuying process.
On the House blog posts are meant to provide general information on various housing-related issues, research and programs. We are not liable for any errors or inaccuracies in the information provided by blog sources. Furthermore, this blog is not legal advice and should not be used as a substitute for legal advice from a licensed professional attorney.