How To Buy A Home If You Have Student Loans

If you are a recent graduate buying a home is as easy as ABC!  Recent graduates may become homeowners!  Yes!  Along with your diploma or certificate of graduation all of the hard work you put into your education may make you eligible to qualify for a mortgage.  You made the grades in college.  Here is how to make the grades to become a homeowner (with or without student loans).  Kara Davis is a leading provider of mortgage loans in Lake Charles, Sulphur and Westlake Louisiana.  For more information call Kara Davis today 337-842-0115 or fill out a quick quote on the right.

I AM a Recent Graduate WITH a Job!

Congratulations, graduates!  You are smart, committed and forward thinking!  Too smart to pay rent!  So…Don’t! You may qualify for an FHA mortgage.

Do you have the following:

  • Diploma or Certificate of Graduation?
  • Student Transcripts showing at least two years in school?
  • Employment Letter/Offer or
  • 30 days of paystubs?

Income will be calculated on your base salary.  We will not be able to use overtime to calculate income because that requires a two year work history.

I AM Smart!  I Graduated With Credit History

You are smart!  You know that you need credit to get credit.  So during your education you have been liberally using installment and revolving credit.  Hopefully you have been keeping the outstanding balance to high credit low.  For example, if the creditor offers a limit of $1,000 you should keep your outstanding balance under $300.  Don’t overuse either type of credit.  For best results, have a small installment loan with two revolving loans.  And, REMEMBER, keep the outstanding balances low!

I Have A Lot of Credit!  Now What?

Credit is a good thing!  Good credit is a great thing!  A lot of good credit is definitely a “do-able” thing!  Many recent graduates have student loans!  Given that FHA is more “forgiving” about debt ratio (amount of money coming in versus the amount of money going out) than most other loan programs, recent graduates with student loans may qualify for an FHA mortgage even with high debt-to-income ratio!

I Have Student Loans!

Currently more than 44 million borrowers in the United States owe more than $1.5 trillion in student loans.  Additionally, more than 42 million student loan borrowers have student loan debt of $100,000 or less and more than 2.5 million student loan borrowers have student loan debt greater than $100,000.

Under certain circumstances, you can receive a deferment or forbearance that allows you to temporarily stop making your federal student loan payments or to temporarily reduce the amount of your federal student loan payments. Stopping or reducing your payments may help you avoid default.

You’ll need to work with your loan servicer to apply for deferment or forbearance; and be sure to keep making payments on your loan until the deferment or forbearance is in place. Your loan servicer will notify you if further information is needed or if you do not qualify.

Regardless of the payment status, student loan debt will need to be included in your debt ratio for an FHA home loan.

Student Loans (II.A.4.b.iv.(H) (TOTAL) and II.A.5.a.iv.(G) (Manual))

(1) DefinitionStudent Loan refers to liabilities incurred for educational purposes.

(2) Standard The Mortgagee must include all Student Loans in the Borrower’s liabilities, regardless of the payment type or status of payments.

(3) Required Documentation If the payment used for the monthly obligation is: less than 1 percent of the outstanding balance reported on the Borrower’s credit report, and less than the monthly payment reported on the Borrower’s credit report; the Mortgagee must obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor.

(4) Calculation of Monthly Obligation

Regardless of the payment status, the Mortgagee must use either:

 the greater of:

  • 1 % of the outstanding balance on the loan; or
  • the monthly payment reported on the Borrower’s credit report; or
  • the actual documented payment, provided the payment will fully amortize the loan over its term.

What About Down Payment and Pre/Paid Items and Closing Costs?

With an FHA mortgage you may only need 3.5% down and it can be a gift from a relative (sourced according to FHA guidelines).  It is not difficult to source the gift but it is best to be prepared!  Most parents, grandparents, aunts or uncles are willing to help their graduate-relatives in their quest to own a home.  Also, a smart graduate will have a smart realtor.  Your realtor will negotiate with the seller to help pay YOUR closing costs and pre-paid items.  In an FHA loan the seller may pay up to 6% of the purchase price towards the borrower’s closing cost/pre-paid items.  Wow!  You may come to the closing table with only your 3.5% down payment (which has been gifted by someone that loves you)!

How Are The Interest Rates On An FHA Mortgage?

Interest rates on home loans are still historically low.  And, on an FHA mortgage they are more stable than on a conventional loan.  So, in this economic market of mildly unstable interest rates it is SMART to go with an FHA mortgage.

Let’s Get Started

My name is Kara Davis and I have been in the mortgage industry for 17 years.  I have an expert understanding of the Louisiana housing industry and helped hundreds of people purchase their homes.  If you or anyone you know is a recent graduate, give me a call at 337-842-0115 for a pre-approval.  Let’s work together to get you in your dream home today!  You ARE smart!  Congratulations graduate!

Buying a home if you have college debt.