Student loan debt is one of the biggest financial burdens Americans face. In 2014, 69% of graduates left school with student loans in tow and the average debt load came to $28,950 per borrower. With tuition prices on the rise, the student debt problem is only expected to grow.
Student Loans and Home-Buying
Having to send hundreds or even thousands of dollars to your loan servicer each month can be a huge obstacle to achieving other financial goals. For 22% of adults, student loans are a barrier to home-buying. While your loans can make home-buying harder, it doesn’t have to be impossible if you know what steps to take.
Know your debt-to-income ratio
One of things mortgage lenders look at when making loan approval decisions is how much of your current income is going towards debt each month. This is your debt-to-income ratio and this number has to be below a certain cutoff in order to qualify for a loan.
For a conventional loan that’s manually underwritten by Fannie Mae, for example, the maximum DTI ratio that’s allowed is 36%. There are very limited circumstances where Fannie Mae allows a DTI ratio as high as 50% but only a small number of buyers would qualify. The limit for an FHA loan is 43% but only 31% of your income can be spent on housing.