With the total amount of student loan debt in the United States topping out at over $1.53 trillion, it's no surprise that many college graduates are concerned with how their debts will impact their ability to achieve their other financial goals.
After finishing college and landing a great job, purchasing a home of your own is often the next logical step, but will you be able to do it if you're debt-strapped?
The answer is yes! Our real estate agents help new college graduates find their dream homes all the time. It will take some planning and preparation, but it's entirely possible. Start by following these five tips.
- Evaluate Your Current Financial Situation
Before you consider committing to a mortgage, it's essential to take an honest look at your current finances. Do you have enough cash set aside to cover emergency expenses?
Do you have enough consistent, reliable income to pay your monthly bills and cover your mortgage, taxes, homeowners insurance, and other expenses related to owning a home? Once you can confidently answer "yes" to these questions, you're ready to start getting serious about buying a home.
- Check Your Credit Score
Your credit score will have a significant impact on your ability to get approved for a mortgage, and your student loan will impact your credit score. The last thing you want is an unpleasant surprise after you've found the home of your dreams, so check your score right away. This will give you the time to fix any errors and work on improving it if it's less-than-ideal.
You can strengthen your credit score by making your payments on time and avoiding using too much of your available credit.
- Lower Your Debt-to-Income Ratio
When evaluating your credit-worthiness, lenders will look at your debt-to-income ratio. As a general rule of thumb, you're more likely to get approved if the amount of your total housing costs is less than 28 percent of your gross monthly income and your total debt payments (including your new mortgage payment) is under 36 percent of your gross monthly income.
If your numbers are higher than this, work on reducing them by increasing your income, paying off debts, or refinancing or consolidating your loans to lower your monthly payments.
- Work Closely with Your Lender
You'll want to shop around before choosing a lender so you can make sure you get the best possible deal. If you're having trouble getting approved by one lender, keep looking. Once you've found a lender who's willing to work with you, spend some time with your loan representative. Have them explain all of your financing options and how much of a down payment you'll need to come up with for each type. Taking the time to go through the pre-approval process will also give you a true sense of your buying power before you start looking at homes. This will help you make good use of your time and avoid potential disappointments later down the line.
- Find a Great REALTOR®
Working with a great REALTOR® is another way you can set yourself up for success. Be very honest and upfront about your budget, and make sure the person you're working with is willing to respect it. This will help you avoid feeling tempted to splurge on a home you really can't afford. Since most real estate professionals have the "inside scoop" on the newest listings, they can often help you find the perfect home that fits comfortably within your budget.
WeLove Helping First-Time Home Buyers!
When you're ready to take that next step into homeownership, contact us. We'll be by your side every step of the way and will guide you through the process of turning your dreams into a reality.
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