Many recent college graduates today have given up on the American dream of homeownership because they are saddled with student loan payments and are just starting out in their careers. In fact, one survey found that 43% of college graduates with student loan debt say they have postponed buying a house because of that debt. Even so, if you are one of these people, just know that home ownership really is possible. Let’s see, then, how you can buy a house even if you have student debt in Los Angeles.
Improve Your Debt-to-Income Ratio
The top way to make your dream a reality and buy a house even if you have student debt in Los Angeles is to improve your debt-to-income ratio. Basically, this ratio is, according to experts in this arena, “the percentage of your total monthly income that is devoted to making monthly payments on your debt. Your ability to purchase a home depends on your debt-to-income ratio because lenders want to make sure you can afford both the student loan payments and a new mortgage payment.” And here are some way to improve your debt-to-income ratio.
A sure-fire way to improve your debt-to-income ratio (that is, lower it) is simply to increase your income. This may not be the easiest way, but it always works. You can seek a raise, or even get a second job. But financial experts discourage changing jobs in the year before you apply for a mortgage.
REDUCE YOUR DEBT
Certainly, reducing your total debt will allow you to buy a house even if you have student debt in Los Angeles, and it definitely can be down by:
- Paying off (or at least down) your consumer debt so as not to have a balance on your credit card(s)
- Paying off (or down) any car loan(s) you may have
- Not taking on new debt or applying for new credit cards
- Not cosigning on any loan
CHANGE REPAYMENT PLAN FOR STUDENT LOAN
You can also make it possible to buy a house even if you have student debt by changing your student loan repayment plan so that monthly payments are smaller and your debt-to-income ratio is thus improved. (Do be aware though that if you do this, you will pay longer and so pay more in interest.) A couple of viable possibilities for reducing your monthly student loan payments ate the income-driven repayment plan and extended repayment.
REFINANCE STUDENT LOAN
Similarly, you can refinance your student loan for a better debt-to-income ratio. The idea is to reduce monthly payments with a better interest rate. This tactic, though, seldom reduces payments significantly.
Up Your Credit Score
Next to a better debt-to-income ratio, improving your credit score is probably the most important thing you can do to buy a house even if you have student debt in Los Angeles. The main reason is that your mortgage interest rate (and, as a consequence, your new debt-to-income ratio) will be based in part on your credit score. Here are some things you can do to improve your credit score:
- Begin paying all bills on time – always. This is a huge factor in your credit score.
- Carefully manage your “credit utilization,” which is the ratio of credit balances to total available credit lines. This means, basically, using as little of your available credit as you can get by with.
- This may seem counter-intuitive, but don’t close old accounts. Old accounts (mainly credit cards) in good standing can actually help your credit score.
- Make use of different kinds of credit if you don’t have much of a credit history. You might, for example, use a mix of revolving credit and installment loans.
Use Down Payment Assistance
For many college graduates, the biggest hurdle to buying a house even if you have student debt in Los Angeles is coming up with that hefty down payment. There are, however, several options in the way of down payment assistance programs.
According to student loan management advisors, a number of programs exist “that are acceptable to lenders. Many states and cities offer these, including some that allow you to use sweat equity if you want to build a new home.” With an FHA loan, for example, your down payment could be as little as 3.5% of the sale price – instead of the standard 20%. Another possibility is a USDA loan if you plan to buy a house in a rural area.
Consult Your Agent
While your real estate agent isn’t a financial advisor, she will still know all the ins and outs of financing a house purchase. Your agent can help you navigate all these thorny issues so that you can find a way to buy a house even if you have student debt in Los Angeles.