How do students loans effect getting a mortgage for a 1st time home buyer?
I currently have 34,036.47 in student loan debt and I am on an income contingent repayment plan. My goal is to hopefully purchase my first rental property by next year. Can I qualify for a mortgage with an outstanding student loan. Its in good standing. I literally have nothing on my credit besides this. No credit card, car, medical, utilities or bankruptcy. I've read about FHA loans but not sure if I qualify because of the student loans.
- Steve DLv 71 year agoFavorite Answer
The answer to this is maybe. <y guess is that you are looking at an FHA loan because of the low down payment (3.5%). This is fine as long as the house you are buying is has at least one other (and up ot3 orger) apartments (i.e., a duplex). One FHA rule is that the property must be your primary living space, so in a duplex, you would live on one side and your tenants on the other (this would not be a bad way to introduce yourself to the joys of being a landlord :). If you did not plan on living there, that would make whatever property you buy an investment property and you will not qualify for an FHA-backed loan, which means you will need at least a 25% down payment.
Then you start looking at the qualifying factors. First, have you been on your job for at least two years (or have two years of steady employment in teh same job category)> Or can you substitute relevant education - for example, a bachelor's degree in hospitality and then a job in management at a hotel. Then we go to credit - to ualify for most mortgages (and especially a mortgage on an investment property) you need established credit. If the company that holds the student loan reports the payments to the credit bureaus, this will count as credit. If the loan is not reported, then you are correct, you have no credit and virtually no one will issue a mortgage to you for an investment property. The last question which you left unanswered/omitted is income - specifically, what percentage of your income is taken over by those student loans. Lenders base some of their decision on your total debt level (measured by monthly payments). If for example, your student loan has a $500 monthly payment and you make $25,000 a year (about $2,000 a month), the loan takes u about 25% of your income - no way do you get a mortgage. If, however, your loan takes up 5% of your income (say $100 a month on $2,00 a month in income), that would pretty much keep you under the target ratio. Lenders use one of two ratios - a front-end or back-end ratio. Front-end counts just the mortgage payment - so if you make $2,000 a month, the lender wants to see a front-end ratio of 28% or less (meaning your payment must be $560 or less (basically you are looking at a mortgage of $75,000 or less on income of $2,000 a month). The ratio is a little higher (31%) for an FHA loan - a payment of $620 a month. Alternately, lenders use a back end ratio which is total debt to income - for this, you take the projected mortgage payment, add in any loan/credit card payments (use the scheduled payment, not how much you actually pay), This should be 36% or less = for more info - https://www.bankrate.com/finance/mortgages/why-deb...
Since you afren't planning to make the purchgase for a year, you can use the intervening time to do two things - save for that down payment (remember to include closing costs) - figure if you buy that duplex, you will need 10% of the purchase price in cash - 3.5% down payment 5 - 6% closing costs and 2 months worth of mortgage payments in the bank (the lender wants to see this as a buffer). Then get a credit card. Use it each month for small purchases and pay off the balance as soon as you get the bill (yes, wait for the bill - if you pay off the credit card before the closing date, it looks like you never used the card). This avoids finance charges (why give the bank more money) and will build your credit history. Keep your monthly high balance under 30% of your limit (i.e., no more than $150 at any one time on a card with a $500 limit). If no one will issue you a regular, unsecured credit card, talk to your bank about a secured credit card.
- sirjester099Lv 61 year ago
It's called debt. They give credit based on your credit score and your income to debt ratio.. Meaning you have to have a lot more coming in than what is going out
- JudyLv 71 year ago
First ttime home buyer for a home for yourself might not be a problem, but buying rental property is different.
- curtisports2Lv 71 year ago
You cannot buy your first home to use as rental property unless you are buying a 1 to 4 family residence and will be living in it yourself. Investment lending requires much larger down payments at somewhat higher interest rates. Most lenders include a 'immediately due and payable' clause in the loan document that they will use if they learn that you are not living in the property.
The lender will count the current monthly payment toward the income to debt ratio of the portion that is not just for the housing payment, and toward the entire ratio. It would be treated no differently than a car loan. If you have sufficient income to qualify for the mortgage and your total other debt is within the allowable range, you have a score of 700+ and you have the required cash for down payment, closing and prepayment of taxes and insurance, you should have no problem being approved. Those who are telling you that you can't, based on seeing '$34k in student debt', do not have a clue about how the process works. It's the payment that matters, not the debt principal.
- How do you think about the answers? You can sign in to vote the answer.
- real estate guyLv 71 year ago
First, you will NOT!!!!!!!!!!!!!! get a FHA loan (3.5% down) since this is an investment property. If you plan to say you will live in the property, but don't, this is mortgage fraud. You WILL!!! sign a legal doc at settlement stating clearly that you this is being purchased a a primary resident.
Investment loans usually require AT LEAST 20% down.
Your student loans are treated as any other debt. You have a monthly payment that will be used.
PLEASE talk with a mortgage lender. It's free
- ntLv 61 year ago
You must have good credit, high income and a lot down. The debt will limit how much they will lend you.
No other credit probably means you will not be approved. Most people who get mortgages have had credit cards & car loans for years with a good payment history.
If your husband has bad credit you probably wont be approved unless you have high income on your own. (and leave him off it)
- MaxiLv 71 year ago
You are not intending to purchase your "1st home" you are considering purchasing a "buy to let" and thise are treated completely differently..... mainly you will require a much higher deposit and the cost of the loan will be more...... really you have no low credit and high debt so you will get neither mortgage
- Anonymous1 year ago
You have NO CREDIT and a HIGH DEBT.
No one will touch you.
- A HunchLv 71 year ago
For a non-owner occupied property, you need to have 30% down.
So that brings us to: you can either pay more on your student loan repayment plan OR you don't have 30% for a down payment sitting around.