Graduating…getting employed……the next big step is owning a home. The latter is considered a massive milestone and once achieved, you’re considered successful. Nevertheless, that remains a dream for many millennials due to increasing student debt that make it difficult for them to buy a home.

A survey conducted by the National Association of Realtors showed that 80 percent of millennials don’t own a home. Out of those, 83% percent claimed heavy undergraduate loans as the main reason why they don’t own a home.

You can still take out a mortgage even with a student debt, but make sure it makes financial sense taking on bigger loans while still trying to clear student loan.

If you do decide to take this route, consider the following tips:

Take Time to Build Your Score

Lenders take a keen interest in the borrower’s credit score. Some borrowers find it difficult to maintain a great credit score with student loans, though, but that shouldn’t be the case.

As a matter of fact, unless you made late payments or skipped some, your student loan shouldn’t pull you down. Before you consider taking out a mortgage, use the following information to improve your credit score:

  • Make on-time payments: By making consistent and on-time payments, credit score gains a few points. In the long run, you can leverage a great score to negotiate for a favorable mortgage.
  • Keep an eye on credit utilization ratio: This number is calculated by comparing your card limit to your debt. For example, if your card limit stands at $5,000 and you have a balance of $1,000, the utilization ratio stands at is 50%.  You’ll want to keep this figure at 30%.
  • Maintain old accounts: Old accounts help in building a great credit history, especially if they have good ratings. If you decide to close an old account that it might not help improve credit score. Instead, keeping it open for a more extended period would help to show a longer credit profile which eventually can turn into good points.
  •   Mix Your Credit: it can be a good idea to take many loans of the various kind like auto, personal and auto. If you are paying them on time, then it depicts that you are financially disciplined and willing to pay your debts on time. This puts a good impact overall.
  •    At last, get a copy of previous credit report and try to figure out where you are failing that resulting in bad credit. Targeting and Fixing those issues before going for a mortgage can improve the chance for the application being accepted.

Search for A Lower Price Home Options

One of the effective options to own a home by just taking the loan that is affordable and then searches for an option for home availability within that price range. Avoid high price real estate market as it will be impossible to locate an option with a lower price for a home.

Maintain a Low Debt-to-Income Ratio

For a lender to decide whether you can make monthly payments, they will calculate your DTI. The 28/36 is a common system used by many lenders to establish eligibility for people intending on taking mortgages but have student loans.

This is how it works. You should spend less than 28% of your current monthly income on house-related expenses and less than 36% to pay all loans including the mortgage you are about to take out.

However, if you don’t meet this rule, it doesn’t mean that you won’t have access to a mortgage. Lenders will still offer you loans, but the decision is up to you. It’s not a good move to take out a mortgage with a high DTI.

You can bring down your DTI by clearing your debts or increasing your income, either by getting a side job or asking for a raise. Nevertheless, you can consolidate or refinance your loan, but it will depend on the type of student debt you applied for.

Another alternative is enrolling in an income-based repayment program if you have a federal loan. This move can reduce the amount you pay in monthly installments, thereby increasing cash flow and making the mortgage a bit affordable.

Refinance for Lower Monthly Payments

One can look for various refinancing option for their student debt to get lower rates as much as possible. There is a good number of options are available for good credit score borrowers. If someone has a credit score of over 740 then option like Sofi, Purefy offer even much lower rates. Just search online and try to opt for the best rates and an extended term with a much better company to save a huge amount of cash on your loan.

Get Pre-approved to Increase Your Buying Power

If you have a student loan and need to seek pre-approval before buying a home, the following tips will help you out:

  • The lender will analyze your financial history only for a short period. In addition, you have to explain the source of your funds, including any deposits that don’t reflect your income.
  • You can get gifts from friends and family. However, lenders don’t accept loans made as down payments. Therefore, if you receive a loan that don’t perform no credit check from anyone to make a partial down payment, certainly it won’t work. It has to be in the form of a gift, along with a gift letter from the lender.
  • Confirm with the lender to make sure you have submitted all relevant documents for pre-approval: Asset statements for the past two months, pay stubs for the last 30 days, tax returns of 2 year minimum and W-2s from the last two years are some of the needed paperwork.
  • Getting Mortgage for Self-employed they will have to provide extra paperwork to confirm your income. The documents can cause a further audit on your income by an accountant in order to verify all the information you presented.

After pre-approval, you’ll get a clear picture of which homes fall within your reach. In addition, once you approach home sellers, you are bound to get their attention, since they know the lender is ready to commit funds.

Seek Down Payment Help

Most of the lenders take down payment help provided by states. Regardless of your heavy student debts, you can still get ahead with federal loan programs like an FHA loan, which can help in down payments. For example, by meeting the FHA loan requirements in Florida, Florida homebuyers can secure an FHA loan there, potentially avoiding the need for a large down payment.

Is It Worth It?

Despite having student debt, you can still get access to a mortgage. However, it’s important to understand your financial situation at the moment and in the future. This includes questioning your income sustainability. Can it deal with both loans?

Owning your dream home with such loan requires a leap of faith, preparation, and lots of research.