Can You Buy a Home if You Have Student Loans? 

Is buying a house even possible if you have student loan debt? You are newly degreed and anticipating a higher income in the future, but can you qualify for a home loan now?

You do not need to wait until you are debt-free before you begin your home search. Begin by contacting Attorney Mortgage. We can help you understand the process. Acquiring a mortgage can be confusing and frustrating, but we can help you understand the process and create a smooth path to home ownership. 

A Plan of Action

What should be the first plan of action after graduation regarding that student debt? It depends on the type of student debt, says Joshua Cohen of Cohen Consumer Law based in St. Albans, Vermont. If you have a federal loan, Cohen suggests looking into Income Driven Repayment (IDR). “If private, get your budget in order and prepare to pay – private lenders do not offer plans based on your income. If the interest is high, consider refinancing to a lower rate, but do not refinance federal loans.”

Source: The Student Loan Lawyer

Income Driven Repayment

Federal Student Aid is a part of the U.S. Department of Education, and is responsible for managing the authorized student financial assistance programs. An income-driven repayment plan sets a monthly loan payment at what is meant to be an affordable amount, and is based on the size of your family and your income. 

Borrowers should know important information about student loans, says Cohen, including their monthly payment, the due date, the amount of principal and interest that is paid in each payment, etc. And he says, it is important to make payments on student loans. “If you’re not making payments, the loan will get bigger. It’s legal. Maybe not fair, but legal.”

There are four types of IDR plans. All have specific requirements and restrictions:

• PAYE – the Pay As You Earn Repayment plan helps to keep student loan payments affordable for new borrowers with low incomes. 
• REPAYE – the Revised Pay As You Earn program is a federal program that helps borrowers manage loan payments in relation to income. Payments are typically set to 10% of the borrower’s discretionary income, and can change according to the borrower’s change in family size or income level. 
• IBR – the Income-Based Repayment plan is created to help borrowers with low incomes who have high student loan balances. Borrowers must show partial financial hardship to qualify for this loan.
• ICR – the Income-Contingent Repayment plan can help lower payments for borrowers that might not be eligible for PAYE or IBR. This plan does not require borrowers to show partial financial hardship. 

Contact Attorney Mortgage if you currently have student debt and are interested in buying a home. We can help you maneuver the obstacles and help you begin to build long-term wealth and create financial flexibility through home ownership.

Cohen adds that you should never pay down a federal loan that is on IDR. “It doesn’t affect your payment. Better to keep the money in the bank or pay down your private loan, assuming they re-amortize and give you a lower payment,” says Cohen. “Never use retirement to pay down a student loan. Also, you’re not going to die with your Federal student loan debt. There are plenty of forgiveness programs. When in doubt, get help.”

Lower Debt to Income Ratio

You can lower your debt-to-income (DTI) ratio even when you have student debt. Here are two ways to begin:

• Pay off other debts. Paying debts such as credit card balances eliminates an expense that is recurring – and removing that from the equation looks good to your lenders and helps you build a better credit score. Pay attention to spending habits – make sure you don’t sabotage the process by over-spending. And be aware of the interest that may be accruing on credit cards.

• Increase your monthly income. You are already on your way to a wonderful career as an attorney, and your income will increase. You can speed up the process by adding multiple streams of income to pay down credit card or other types of debt, and build a nest egg for future home expenses. To affect your DTI ratio, however, the extra income will count only if it is recurring. Talk to Attorney Mortgage for more information about income and how it affects your DTI ratio. 

Home Matters

Even if you have student loan debt, you can still move forward with life goals that include home purchases. Attorney Mortgage can guide you through the mortgage loan approval process, from pre-qualification to the moment you step over the threshold of your new home. 

“Student loan debt does not hurt your ability to buy a home or car, or get married, or any other life issue any more than any other kind of debt. It’s harder to get rid of in bankruptcy, that’s the key difference,” says Cohen. “When it comes to lending, creditors care less about your total balance and more about your monthly payment. Federal loans on an IDR make a borrower more credit worthy.”

If you are a newly degreed attorney, an established attorney looking for a home, or if you are ready to refinance your home, Attorney Mortgage can help you navigate the loan process. Contact us or call (816) 860-1686.

Sources:

• Income Driven Repayment Plan
• Revised Pay as You Earn
• Income Contingent Repayment

jcohen@thestudentlawyer.com
Joshua Cohen
Cohen Consumer Law
PO Box 1040
St. Albans, VT 05478
www.TheStudentLoanLawyer.com
Licensed CT and VT
802-380-8887
860-233-0338
Fax 860-233-0339
Workshop: www.StudentLoanToolbox.com
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