Wednesday, 1 December 2021

Should Student Loan Debt hold you from Buying a House?

Should Student Loan Debt hold you from Buying a House?
23 Oct

Student loan debt; a devil which has crept into the psyche of the Americans, so much that they are always skeptical about any ‘good’ begetting them because they have been afflicted with the wrath of Student loan debt.

For instance, many people give up on buying a house just because they have student loan debt and guess what, comfortably half of America shares the same conviction which is falsified. (Bear with us on this)

We understand that the current socio-economical zeitgeist of the country makes you believe that there is no coming out of student loan debt and that you have to feel claustrophobic until and unless you have shrugged off student loan debt completely, but you are missing the point and (so was I once).

The hive mind of the personal finance blogs says that you have got to make lemonade and savor it when life throws lemons at you. And, this very blog is intended for the same, to show you way out of your mess. Buying a house, living the American Dream is not a cakewalk. Yes, we want you to be brimming with enthusiasm but getting acquainted with ground realities before you set off for an expedition is always a good thought. Getting a house for yourself while owing student loan would be anything but easy.

Student loan debt is like falling to the ground in a battlefield (which every warrior does) but only those who get hit, stand their ground once again and keep moving, conquer the mightiest of the empires. So, wear your armor, and awaken the warrior inside, here’s the strategy which will help you in conquering your GROUND ZERO.

1. Keep up your credit score

FICO is perhaps the most recognized and acknowledged credit score as you may have fathomed by now. The score ranges from 350 to 800. Any score above 750 is considered exceptionally good, while any person with a score below 600 is deemed to be in deep waters.

Don’t know how to raise your credit score, here’s how you can increase your credit score by 200.

In order to qualify for a mortgage and get a low financing cost, your credit score has to fall in the ambit of good.

Each credit bureau collects your credit history and develops a credit score which helps lenders in evaluating the risk associated with you. If you find that credit bureau hasn’t recorded the debt pay off that you just made, or is still assessing you over your past financial history, you can reach out to it and ask to make amendments in your profile.

2. Maintain your debt-to-income ratio

More often than not, lenders evaluate your debt to income ratio while approving your credit request. Debt to income ratio means how what portion of your income you are paying off as debt clearance. a poor debt to income ratio could often mean higher interest rates.

You can increase your debt to income ratio through side gigs or by paying off debt or may be working on both simultaneously.

3. Make minimum monthly payments

The only way you are getting out of debt anytime soon is by making minimum monthly payments to some debt verticals, and not letting the interest rates to escalate. Payments are undeniably the biggest component of your credit score. You can also automate payments for accounts so that money is debited by itself and you don’t miss out on payments, thus avoiding the debt to do any further collateral damage to your finances. This could be achieved by using the Trim app.

4. Get pre-approved for a mortgage

Many people choose their home and then apply for a mortgage, whereas it should be the other way round. One should get approved with a lender first so that he/she knows to cut the coat according to the cloth.  To get approved, lenders will look into your income, assets, credit profile and job history alongside other documents.

5. Look before you swipe

Lenders also consider the credit purchases you make as a percentage of your credit limit. Technically, your credit usage should be less than 30% of your credit limit.

Here’s how you can go about maintaining your credit usage:-

  • Ask your credit card issuer to increase the credit limit so that you don’t have to remain tight-fisted.
  • Pay off your balance twice or may thrice in a month so that your credit limit doesn’t plummet.

6. Look for someone to intercede on your behalf

Down payments to clear off your student loan debt might come to your rescue,  FHA loans – federal loan via the Federal Housing Authority and USDA loans – zero down mortgages for the country and suburban homeowners are only a couple of them. You should always be hunting down for such schemes as there quite a handful of them run by state and the federation.

7. Consider consolidating credit card debt with a personal loan

Consolidating is often times the best resort to shrug off your credit card baggage. Consolidation will help you tackle single debt at a time and that too at nullified rates as compared to that of credit card debt.

Moreover, you enjoy the luxury of paying off your debt at lower rates and by the means of installments which are suited to your finances. Not only that, a personal loan will help in improving your credit score if you adhere to making payments on time. Also as a byproduct, you can diversify the type of debt that you owe.

8. Refinance your student loan

Lenders also consider student loan payments, because they want to evaluate you on the basis of how you have been responding to your financial obligations in the past. One solid way by which you can be punctual in making student loan payments is by getting it refinanced.

Refinancing is when you substitute a loan with an altogether different loan. The objective is to opt a lowered interest rate (compared to the loan that owed) so that you can get reduced monthly payments and save thousands in dollars over the lifetime of a loan. Refinancing also gives you the luxury of consolidating your loans (as you can pay off smaller loans with your new loan). In the event that you can get a lower financing cost (or some other preferred standpoint), you’ll be in a superior position.

Should you follow these 8 commandments, your chances of buying a home will increase manifold alongside countering student loan debt.


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