Is Student Loan Debt Stopping You from Buying a House?

Hello Hampton Roads,

Is student loan debt stopping you from buying a house?
According to the NAR (National Association of Realtors), almost 20% of buyers with student loan debt are denied a mortgage because these loans cause the borrowers' DTI (debt to income ratio) to increase.  Even if loans are in deferment/forebearance, lenders are still required to count the debt and use 1% of the loan balance as the monthly repayment amount.

The lower the DTI ratio, the more money can go towards housing and the higher a mortgage amount a buyer can qualify for.  In calculating your DTI, lenders look at both your front end ratio and your back end ratio.

Front End Ratio
This takes into account the amount of your projected monthly housing payment and your gross monthly income.  For example if your gross monthly income is $4500.00/mo and your housing payment,  PITI (principle, interest, taxes and insurance) is $1300.  Then your front end DTI would be 28.8%.   $1300/$4500 =28.8%.

Back End Ratio
This takes into account all your recurring debt including the housing payment.  For example is your gross monthly income is $4500.00/mo as above, and your total monthly debt is $1800.00, your back end DTI would be 40%.   $1800/$4500=40%

Certain loans, like FHA allow for higher DTI limits so it's important to explore your options.  In addition to loan type, certain lenders may specify their own overlays/limits as well but in general 50% back end DTI is the maximum most lenders will accept for standard loan programs.

If you find yourself in a situation where your DTI is too high due to student loans there are options where you can try and lower the monthly amount of your loan debt.  The Consumer Finance Protection Bureau is a great resouce to consult for those with federal /direct student loan debt.

Some options to repaying federal student loan debt are as follows:
IBR (Income Based Repayment)
This program is open to all student borrowers and caps payment to 15% of discretionary income.

PAYE (Pay as You Earn)
This program is for newer student borrowers and caps the payment to 10% of a borrower's discretionary income and forgives any remaining balance after 20 years of  qualifying payment.

REPAYE (Revised Pay as You Earn)
This program, like PAYE, also caps repayment to 10% of a borrower's discretionary income but is open to borrowers regardless of when they took out their first federal loan.  There's no income requirement to enter the plan which means the amount your owe and your current income level won't keep you from qualifying. However, regardless of how high your income is or grows, you will always pay 10% of discretionary income.

If you would like to buy a house this year and need any assistance with qualifying with student loan debt, please reach out to me.  I'm happy to learn more about your home buying plans and develop a plan to help you get there!

Thanks for Reading,


Serving your Hampton Roads and Virginia Beach Real Estate needs. Liz Schuyler on Google+


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