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By Kathryn Pins
You’re a successful individual who works very hard toward your financial goals. You want to buy a home because you know it’s a great long-term investment and you’ve outgrown your apartment situation. However, you have student debt. Believe it or not, homeownership doesn’t have to be a dream. We’re here to help you with some tips on how you can purchase your dream home even though you have student debt.
A good credit score will be important when applying for any type of loan. Take a look and create a plan to increase your credit score. Some quick tips include fixing credit errors, avoiding going near your maximum credit limit, and paying your bills on time.
Mortgage lenders use your DTI to determine how much you can afford. There are two ways to improve your DTI if you want to buy a home: decrease your debt or increase your income. Come up with a plan on how much you can pay each month toward your debts. Also, take a look at your income. Will you be up for a raise soon? Is there a way for you to start the discussion with your manager early? Will a side hustle help? Any increase in income will make a difference when lenders calculate your DTI.
Many banks and credit unions offer unique programs for first time home buyers. You will find variations in down payment percentages, loan amounts, and options for zero private mortgage insurance loans. (Speaking of private mortgage insurance, determine if you need PMI in the first place.) Some programs even take into account your occupation and future income when considering your DTI. For example, Alliant’s Medical Mortgage program will exclude student loans from DTI ratio calculations for new doctors and dentists.
The days of needing 20 percent down to buy a home are over. With student debt, you probably need more than 0 percent down, but some programs will let you put as little as 5 percent down. After researching your options, start saving toward your down payment and closing costs. Pro tip: Don’t empty out your emergency fund to pay for your down payment and closing costs. It’s recommended to have three to six months of living expenses in a savings account.
Owning a home is not just a good long-term investment. As you build equity in your home, you will increase your net worth. You will also find that there are great tax advantages to owning a home too (consult a tax advisor for additional information). Also, it’s often less expensive than renting over time.
Buying a home can be a symbol of a dream accomplished. If you consider the tips above, you can get closer to purchasing a home despite your student debt. Check to see if you need a jumbo mortgage and read these four tips for buying a home any time during the year.
If you are interested in Alliant’s Medical Mortgage Program, please contact us at GRP-LoanOfficers@alliantcreditunion.com.
Kathryn Pins is a marketing content specialist at Alliant. She’s passionate about finding and communicating meaningful financial information with Money Mentor readers. Kathryn is a saver who gets more excited about certificates and her Roth IRA than shopping. When she does spend her earnings, it’s on furthering her education, travel, unique experiences, and loved ones.