With mortgage rates remaining near historic lows, many financial experts are making the case that student-loan debt doesn’t always have to hold back millennials from buying a home. However the message isn’t getting across: Nearly 70 % of millennials state they are delaying a real estate purchase because of their student debt load, according to the latest survey by CommonBond.
How to Buy a home When You’re in Debt
Forbes.com recently highlighted whether a person with student-loan debt was prepared to become a home owner with the following assessment:
Debt-to-income ratio isn’t everything. Yes, the proportion of one’s income that goes toward paying your debt is a central determinant of whether you’re ready to buy a home. Many lenders call for a debt-to-income ratio of 36 percent or less to be eligible for a a home loan. But a buyer with student-loan debt shouldn’t worry his or her number will automatically disqualify them. The key is that they pay their bills on time as well as have enough income left over to make up for their debt.
You may still handle more debt. The most beneficial interest rates tend to go to those who can offer a 20 percent down payment, but loans are available which require as little as 3 percent down on a home. How much more debt could you undertake? Provided you can handle your student-loan debt along with a bit of a higher mortgage balance yet still be comfortable, that’s one way to make it work. Or, if you can save up enough for a larger down payment while paying down student debt, that could be a more sensible choice. But potential home buyers need to take into account all the extra costs of home ownership beyond just the monthly mortgage payment.
Make a budget. To save for the down payment, would-be buyers need a budget in place. Katie Brewer, a certified financial planner in Dallas, suggests budgeting with broad buckets: fixed expenses, variable expenses, and longer-term goals (e.g. paying down debt, buying a home, or saving for retirement). Brewer recommends keeping fixed expenses to 50 % or less of your overall budget. There’s really no one budget style that is more effective, however. The key part is to just choose a method and then begin working toward the goal – saving for a down payment, in this case.
Nick & Cindy Davis work with several lenders here in the Tampa Bay area that are ready to assist you. If you are ready to purchase your new home. We are always just a click here or call to 813-300-7116 away.
