Tag: first time home buyers

Qualifying for a Mortgage with Student Loan Debt

qualifying for a mortgage with student loansIf you are in the market for buying a house it is important to understand the implications of qualifying for a mortgage with student loans. Each year, at least 60% of college attendees take out some form of student loans to help with the ever growing costs of higher education.  While this can be an invaluable investment into one’s future, these loans can pose a challenge when it comes to buying a home.  Recently, new guideline changes have gone into effect that can substantially impact how someone qualifies for a mortgage.

FHA home loans are a great choice for first time home buyers with flexible work history and credit requirements!

The main way student loans impact an individual’s qualification is through their impact on an applicant’s Debt-to-Income Ratio (DTI).  This ratio gives a lender an idea of an applicant’s ability to reliably make monthly payments.  Simply put, this figure is calculated by dividing all monthly debt obligations (ex. Car Loans, Credit Cards, Mortgages, Student Loans, etc.) by gross monthly income.

Each mortgage program has different guidelines that are key to qualifying for a home loan with open student loan debts.  Calculating the monthly costs for student loans is especially tricky if the loans are deferred, in forbearance or not yet in repayment.

Regardless of program type, one of the most important actions a prospective home buyer much can take is to gather the payment documentation for the student loans.  This will allow your mortgage professional to ensure the most accurate qualification and best deal possible. The buyer’s credit report may not always accurately reflect the buyer’s minimum student loan payments which may affect underwriting approval.

Below are a few indicators of how student loan payments will affect a buyer’s debt to income ratio when qualifying for a home loan:

  • Conventional Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • This payment will be calculated by either 1% of the remaining balance or the actual monthly payment, whichever is higher.
    • If a student loan payment is reporting on a credit report some conventional programs may allow this payment to be used even if it is under 1%.
    • Example: $24,000 in total student loans would add a minimum of $240 per month for qualifying purposes.
  • FHA Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • The greater of the actual monthly payment from the credit report or 1% of the remaining balance will be used to calculate a minimum qualifying payment.
    • Income based repayment plans are no longer accepted if they are not fully amortizing.
    • Example: $24,000 in total student loans would add $240 per month for qualifying purposes if no payment is reporting on credit otherwise the underwriter will accept documentation showing the minimum student loan payments.
  • USDA Mortgage with Student Loans
    • Regardless of deferment or forbearance, a payment must be counted against DTI
    • This payment will be calculated by either 1% of the remaining balance or the actual fixed monthly payment, whichever is higher.
    • Income Based Repayment plans are not acceptable if they are less than 1% of the balance.
    • Example: $24,000 in total student loan payment would add a minimum of $240 per month for qualifying purposes.
  • VA Mortgage with Student Loans
    • The actual payment listed on the credit report or account statement will be counted against a borrower’s DTI.
    • Student loan debt may be excluded from DTI if the payment is not scheduled to begin for 12 months after the closing date (Documentation is crucial).

Get Pre-Approved to buy a home when you have student loans

We work with several first time home buyers and even repeat buyers have student loan debt.  It is crucial that you work with an experienced loan officer that knows the guidelines to assist you in qualifying for a mortgage when you have student loans.  With each mortgage program having different loan requirements it is important to understand how your debt to income is affected with each home loan option.

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How Mortgage Lenders Choose Your Mortgage Rate

Mortgage loans are detailed products and it is fair to say that one size does not fit all when it homes to home loans. The interest rate that you may qualify for on a mortgage may be different than what others qualify for based on their situation. This short video from MSNBC explains how mortgages work and ultimately how lenders choose your mortgage rate.

Because each homebuyer has a different financial situation, it is important to work with a local mortgage company that offers multiple home loan options.

Below is a short list of mortgage options and their benefits:

Conventional Mortgage: A great mortgage option for high credit score buyers that have 5% or more to use for a down payment. This is one of the only mortgage options that you can get rid of PMI (private mortgage insurance).

FHA Mortgage: FHA loans are great for homebuyers with bumps in their credit past of even first time home buyers. Qualification requirements are easier than conventional mortgages because these loans are insured by the federal government.

VA Loans: A great mortgage for military veterans is a VA Loan which is a zero down mortgage. While there is an up front guarantee fee charged by the Veterans association, there is no monthly PMI which helps to keep payments low and affordable.

USDA Rural Development Loans: The RD loan is great zero down home loan that is great for first time home buyers. This type of mortgage allows a homebuyer to buy a home with no down payment and the sellers can pay your closing costs. Qualifications are easier than conventional mortgages however there are restrictions on income and the location of the home.

What Mortgage Rate Will I Get?

To see what mortgage rate you qualify for call Riverbank Finance at 1-800-555-2098 or request information below.

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First time home buyers disappearing.

What’s going on with the first time homebuyer?

It is hard to decipher the recent housing number reports as all of the first time home buyer seem to be disappearing. Because of recent market changes the May housing report is at it’s highest numbers since May 2006. Bloomberg, also reported that mortgage applications have sunk to their lowest levels in 19 months. One important note that helps explain this is The National Association of Realtors has reported that 33% of all new home sales are from cash buyers. It stands to reason that barely any of these new first time home buyers took part in buying a house for cash though. The first time home buyer has always been a cornerstone piece of the real estate market. The real estate market is not a strong real estate market without the first time home buyer.

The numbers indicate that there are fewer and fewer first time homebuyer’s. Why is that?

Most seller’s who are moving up in house will not be able to buy there next home unless a first time homebuyer buy’s there home. If there are fewer and fewer first time homebuyers then the seller trying to move up in house will not be able to sell their home. Since first time homebuyers only accounted for 28% of the total sales in May fewer 2nd time homebuyers are having the opportunity to move up in house. Typically, first time homebuyers account for 40% of the total sales in May. Jobs may be the main reason why there are so few first time homebuyers. Others say that sticker lending guidelines and rapidly rising rates may be the reason.

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May Existing Home Report

May sales indicate the US housing market is blazing a trail to the best start in the past six years according to the National Association of REALTORS® (NAR).  With their monthly existing home sales reports analyzed we can see that “existing” homes sold climbed to 5.18 million for May of this year.

With more homes being sold the competition has also grown spiking home prices. This is the fastest start we have seen for home sales since the government introduced the first time home buyer tax credit in November of 2009.

Inventory of Homes for Sale Hits Long Time Low

The extra demand for homes fueled by the low rates and bargain prices fading away has created a shortage of inventory of homes for sale. For stick built homes, not counting new-construction, existing homes for sale dropped to just 2.22 million which is down 10% year over year.  Using simple math we can see that the total home inventory would be bought up in just 5.1 months if no new homes were added for sale.

As a general rule of thumb, anything under a 6 month inventory of homes for sale represents a seller’s market.

What is a seller’s market when it comes to homes for sale?

A seller’s market is a home sales market favorable to home sellers rather than home buyers.  For the preceding several years, analysts have been calling the housing market a Buyers’ market which allow low-ball offers and nearly unreasonable demands for the sellers to get their homes sold.

With the current seller’s market, sellers are able to list their home for higher price points and offer very few concessions to buyers to allow their home to be sold.  Required repairs and seller paid closing costs are becoming few are far between in the current housing market.

How do I Buy a home in a Seller’s Market?

With the current pace of home sales being a buyer in a seller’s market can be tough. Plan on being outbid on homes you may love and leave yourself plenty of time to find your next place. Additionally the best advice for buying a home in a seller’s market is to be prepared with a home loan pre-approval.

Speak with a mortgage loan officer and find out your budget for purchasing a home and stay within your budget. There is nothing a seller will hate more than to accept your offer only to be held up by the loan process because you were not approved. If the purchase contract expires they will unlikely extend.

Request information on a home loan pre-approval

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