The way society is going, more and more adult children are staying in their parent's houses until they are 25 and even 30 due to the fact that they have student loans and debt that needs to be paid off. Because of this, many young people or first-time buyers think that they can't even afford a home, but there are other options.
Many first-time buyers account for a smaller percentage of the housing market as compared to just 10 years ago. According to the National Association of Realtors®, first-time homebuyers account for just one in three homes sold nationwide.
However, mortgage rates are still historically low and there is a variety of low and no down payment options, many of which are perfectly design for first-time buyers. Several of these buyers fear that their debt or student loans is preventing them from getting a home but it really comes down to the cost, affordability, and management of finances.
In order to afford a home, lenders look at your down payment, credit scores, and the debt to income ratio. If you have student loans, chances are you might also have a decent job as a result of college courses or a degree. You may be earning more money than you did before college and this plays a factor in your debt to income ratio.
Employment history, down payment size and your credit history, as well as credit score, also play a factor as to affordability.
If a down payment is your concern, there are FHA mortgages which require a 3.5% down payment and even then there are options that allow for a 2% buyback from several lenders giving you a mortgage or just one and a half percent down payment.
Credit scores will determine which programs you are eligible for. A credit score of 680 or higher should be able to net you a decent interest rate and terms. Anything lower and you might need a specified program or simply work for 3 to 6 months on increasing your credit score all the while saving for a down payment.
Student loans can affect your mortgage approval. Your debt to income ratio shows the amount of your monthly income required to repay your debts. For instance: if you are in $5000 per month and your monthly debt obligation was to $2500, your debt to income ratio would be 50%. For most loans your debt to income ratio should be 43% or lower in order to get approved. However, there are certain programs that allow even up to 50%, especially if you are counting other income from the same household. (You cannot use your parent's income as your household income.)
Student loans are not the worst kind of debt. Credit card or unsecured debt looks bad to lenders whereas a student loan debt shows that you are actively pursuing locations with better income. You can reduce your monthly student loan obligation by either switching to a graduated repayment plan, loan consolidation or lengthening your payback term. By lowering your monthly debt payment, you can lower your debt to income ratio, making it more likely to afford a home.
So, why would you want to afford a home if you have debt?
Paying a mortgage every month is quite different than making a rental payment. You are literally putting money away into your own investment. Each month your equity increases in your principal amount decreases. You are saving money in an asset that you could to use and live in during that time. Even if you plan on only staying for 3 to 5 years, the amount of equity you could've gained can make it possible to own a larger home or a better investment in the future.
Buying a house with the debt or student loans is not impossible but there are creative ways to lower your debt to income ratio and make it possible to start saving money for yourself today. Give me a call at any time to discuss your options, affordable homes in the Columbus area or answers to any of your financing and home buying questions.
As a certified Realtor® for the top-rated Columbus Realty Firm - Vision Realty, with 32 years of dedicated real estate experience, I can help buyers, sellers, investors, short sale sellers and more find, sell or invest in the right property, at the right price, at the right time. Contact me anytime for updates and information on the Columbus OH Real Estate market.