If you have just found yourself a good and well-paying job, the thought of buying your own home must have crossed your mind. But you just remembered your student loan debt and just the thought of how huge it is makes you scared and you are wondering if you can still buy a home with such huge debt.
Honestly speaking the interest rates that are associated with the student loans are very huge and prioritizing paying the loan first might not be in your best interest at least that’s what some people think. Don’t get me wrong, I don’t mean that you should not pay your student loan. It is your responsibility and in one way or another, you will still have to pay the loan.
What I would advise is that you should consider limiting your debt to a figure you can afford to pay. But to help you further I have prepared some questions that you should ask yourself before you make this very important decision in your life.
Table of Contents
What is the interest rate of your student loan?
In most cases, the government loans range on an interest rate of about 6.5 to 7 percent. The private loans might even be higher than 7 percent. And if you are the luckiest person in the world probably you can be able to secure a refinanced loan with an interest of less than 5 percent although that is very difficult. The higher the interest rates the more money you will be required to pay before you can be able to buy a home.
What progress are you making in paying your student loan?
Are you making any efforts to try and pay your student loan monthly? If not you should try out some income driven student loan repayment plans in order to achieve some low monthly payment. You should make sure that the amount you pay at least covers the interest the loan accrues each and every month because if it does not, you are not making any progress. And if you are not making any progress it means you will have longer-term affordability issues. Make a monthly plan that will help you make some progress on your student loan debt payment which will, in turn, increase your chances of getting a mortgage.
What is your debt to income ratio?
In order to get mortgage, your debt to income ratio needs be 43 percent or less but the recommended percentage by the experts is 36 percent. If your debt to income ratio is less, the better but if you worried that your student debt is too much then it means that your debt to income ratio might not be so good.
So, if your debt to income ratio is more than 43 percent, it will be wise if you start paying off your student loan debt as well as other debts before you consider getting your own home. Make sure to pay any cash advance loans that you might have first because their interest rates are definitely the highest and you don’t want a small amount accumulating to a large amount you can’t pay just because you could not pay your cash advance loan on time.
By reducing your debt to income ratio, you will be increasing your chances to get a mortgage. The lower the direct to income ratio the higher your chances of getting a mortgage.
How much money have you saved for expenses?
Most experts recommend that save some good money for expenses and any emergencies before you can buy a home. Once you buy a home, certain responsibilities come around with it. That’s why it is always wise to have saved up at least 4 months’ worth of expenses so that the fund can help you out in case of emergencies.
There will be inevitable repairs from time to time and you also need to have saved up for that too. You should also keep in mind that you will be paying for property taxes, insurance, maintenance and homeownership costs etc.
If your student loan is standing in your way of trying to raise your rainy day fund, consider pausing the purchase of the home until you are sure that you are going to be able to raise enough funds for expenses and emergencies once you move in your new home.
Are you contributing to your retirement?
Buying a home is a great achievement and we all want to own a home but that should not be a reason enough to make you forget about other important things like your retirement savings. If you have not started saving for retirement by now, you are doing yourself an injustice. You should start saving for your retirement as early as possible so that your life after a workforce can be at least like the one you are having now if not better.
What is your credit score?
Your credit score will always play a great role in practically anything that revolves around money lending. For you to get the best mortgage rates, you need to have good if not excellent credit scores. Preferably above 740. If your credit score is less than 680, then you might want to consider to wait until you improve your credit score because getting good mortgage rates with such a credit score might be a little bit difficult.
One of the ways of improving your credit score is by paying your student loan on time each and every month without missing even a single time.
Probably you are even asking yourself why you did not opt for online loans like Bugis Credit for the reason that they can process your loans so quick. But you don’t have to beat yourself up because it is still very possible to purchase a home even if you have huge student debt. Student loans also add to the credit mix of revolving and installment loans which could have a beneficial effect on your credit score. Also lowering your debt to income ratio improves your credit score.
I am Very Enthusiastic about Writing Tech, Smart Phones, Products Reviews, Offers, and deals. I have been writing on tricks5.com since 2015.
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