student loans and purchasing a home
1. I have close to $200,000 in student loans. They’re in good standing, deferment, with $0 monthly payments (IDR), and re-certify March 2022. Is it possible to buy a house now using $0 monthly payments to calculate DTI ratio or would I have to wait until next year after I recertify?
2. My middle credit score is 685 and qualifies me for a conventional loan. If some banks prefer to pre-approve mortgage loans with 700+, will paying on my student loans now help to increase my score? (FYI; besides student loans; I only have 3 CC’s and the utilization for all 3 are 10%-15% )
Terry Says
I’m sorry to give you some bad news. But unless you have a lot of income, you’re not likely to get a mortgage (unless maybe you are a first time homebuyer and your state has a program — like Illinois where you can search for those deals on the website of the Illinois Housing Development Authority).
With a conventional mortgage, you’ll have to disclose your student loans. And even though you are currently in forbearance (which ends Jan 30,2022) they will calculate your monthly payment as a monthly expense — which will impact your eligibility. You might be able to show that currently you are paying the same in rent as you are asking for in a mortgage — but they also figure in property taxes and insurance.
That’s why student loans are such a burden — keeping an entire generation from getting into the housing market. Paying off your student loans solves the problem, but student loan payments are not reported to the credit bureaus so don’t impact your credit score. They only impact your “balance sheet” which you have to provide to get a mortgage.
But if you have perhaps 20% for a down payment, you can certainly try. In fact, use the computers at GuaranteedRate.com or Rocket Mortgage. Or meet a friendly banker at Wintrust (seriously) to see if they can figure out a way for you to become a homeowner.
