Debt delay


Will my student debt prevent me from getting a mortgage after I graduate?

Student debt is the major drawback of spending four years at college. It is natural to wonder how you will handle it after you graduate. Getting a mortgage will only add to your burden, however there are federal programs available to make debt slightly easier to manage.

In recent months, efforts have been made to allow the amalgamation of debts by offering refinance options on homes. So, in answer to your question, yes you can get a mortgage even with student debts and move into your home. In many cases, you reduce this debt by finding the best interest rates and repayment plans that work for you.

Fannie Mae, the largest mortgage lender in the country, has provided new guidelines for a tradeoff between student debts and mortgage repayments. This could offer significant savings as the interest on student loans is usually a lot higher than on a mortgage. Student debts are a huge national burden with over $1.3 trillion owed by around 43 million Americans. This anchor on the economy often hinders younger people from buying their first home.

The burden on society is heavy and financial institutions have finally begun to recognize it. Most students will attend college to better their career prospects. Reports have confirmed a positive correlation between college attendance and home ownership. On the downside is an increasing student loan delinquency rate and an effect on credit scores which could derail a mortgage application.

Reduction in the cost of refinancing a mortgage to pay off student debt may alleviate some of the pressure. Over 8.5 million homeowners still have student debts, so this plan will help save on interest repayments and slowly clear any overdue payments. Federal reduced payment plans for student loans are calculated on DTI (debt to income) ratios. Adjustments to these calculations would allow monthly payments to be included. This should improve the debt ratio for younger people which would make getting a loan or mortgage easier. Debts not related to home ownership that are being paid by others, such as parents, are no longer included in the DTI calculation.

Usually lenders would struggle to approve loans when there is still between $50 and $100K in student debt outstanding. The combination of student loan and mortgage, plus the DTI ratio tweaks, make it more attractive to refinance student loans. Student loan deferment is another issue for mortgage lenders. They do not want a repayment structure where you struggle with student debt in the future.

You should always pay something towards your loans, rather than skipping payments. Missed payments can rapidly affect your credit score, which generally needs to be over 650 to qualify for a mortgage. Debt management is still tough, but things are slowly improving.

When you run in debt, you give to another power over your liberty… Ben Franklin.

Miriam Metzinger is a regular contributor and editor for the financial website Seeking Alpha.

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