Home buying isn’t as simple as many other types of shopping. The majority of adults aren’t able to just browse through listings, find one they like, and pay for it. A house is an important responsibility. It’s also one of the most expensive items that people will ever buy, so it’s okay to take as much time as you need to make an informed decision.
Things can be a little more complicated if you have outstanding school loans. These loans are great for helping people obtain a degree in their chosen field, but they will need to be repaid over time. The longer you prolong the process, the more interest and other fees may be added to each and every payment. It can also make the goal of home ownership seem out of reach…at least for a while, anyway.
Buying a home in Texas while you still have student loans can be tricky, but it isn’t impossible. Careful planning, budgeting, and spending can help you succeed. The extra effort can definitely pay off in the long run. Here are a few things you can do if you’re thinking about purchasing property while you still have school loans:
Here are a few things you can do if you’re thinking about purchasing property while you still have school loans:
1. Monitor Your Credit
One of the first things you should do is to request a copy of your credit report. You can obtain a free copy from one of the three major credit reporting bureaus (Equifax, Experian or TransUnion). This report will have your credit score and other important information.
Read the report carefully. Contact the credit bureau if there are any errors or inaccuracies. Resolving those issues may actually help to improve your credit rating.
2. Pay Bills on Time
It goes without saying that all current debt obligations should be paid on time. Missed or late payments can reduce your credit score and make it more difficult to get a home loan. You may want to enroll in autopay for certain recurring bills to ensure that none of them are missed accidentally.
Your student loan, credit card balances, and any other loans should be paid off or paid down as much as you can. Lenders want to ensure that borrowers will be responsible. The last thing they want to do is to lend money to a person who doesn’t take financial responsibility seriously. They also prefer to avoid having to repossess property that would later be sold at a loss in most instances.
3. Reduce Your Debt to Income Ratio
Take a few minutes to examine your debt to income ratio. This weighs your expenses against your regular monthly or annual income. For example, if you have a monthly income of $2,000 and your monthly expenses are $800, your debt to income ratio is 40 percent. The overall goal is to have the smallest percentage that’s feasibly possible.
Some lenders utilize the 28/36 qualifying ratio when evaluating mortgage loan applications. This ratio states that people shouldn’t spend more than 28 percent of their gross monthly income on housing-related costs. No more than 36 percent of an individual’s monthly income should be spent on their mortgage, car payments, utility bills and other regular expenses.
4. It’s Okay to Have Different Kinds of Credit
It’s okay to have multiple credit accounts open at the same time. You can have school loans along with a car loan and one or more credit cards, for instance. Just don’t overdo things. You don’t need to open every kind of credit account imaginable.
The accounts that you do have should be manageable. They will need to be paid on time every month. If certain accounts are more than you can afford, they may need to be closed or you can just avoid opening new accounts altogether.
5. You Can Leave Older Accounts Open
If you have older credit accounts, they can remain open as long as they’re still active. Having older accounts that are in good standing may make you look more appealing to prospective lenders. It shows that you can effectively manage credit.
Any old accounts that haven’t been used for several months or more can be closed. You may even have accounts that you forgot about or didn’t realize were still active. Closing inactive accounts shouldn’t have too much of an impact on your credit rating.
6. Check Into Mortgage Assistance
There are several mortgage assistance programs that can help with your down payment. They are offered in different cities and states. Do some research to find out what options are currently available in your area.
There are also certain types of home loans that require little to no down payment. Many USDA loans don’t mandate a down payment and can be used to buy a home in a rural area. VA loans are available for military members and their surviving spouses. Other loans such as those provided by the Federal Housing Administration have down payments as low as 3.5 percent. Read up on each loan that you are considering so that you fully understand the rules, regulations, minimum credit scores and any restrictions that may apply.
7. Get Preapproved for a Home Loan
When you’re ready to start house hunting, you can contact your lender. Schedule a meeting with them to discuss your intentions. They will review your employment and credit history. If approved, they will then give you a preapproval letter. This letter will include details such as the dollar amount that they’re willing to lend to you and the loan terms. It doesn’t guarantee that you’ll automatically be able to buy the home that you want. However, it can make sellers take your offer more seriously over other interested parties who haven’t lined up their financing.
Conclusion
Consult with your lender or real estate agent if you still have questions or concerns. They can point you toward possible solutions or help you set a schedule or calendar. You may want to start setting goals for yourself, like having enough money saved for the down payment, closing costs, and other associated expenses after a specific number of months, for example. Put your goals on a calendar or chart so you can track your progress and make changes along the way as you see fit.
Once you’ve made a successful offer, it won’t be long until the residence that you’ve had your heart set on will finally become yours. All final paperwork will be signed and filed at closing, the last step in the journey. The seller will be paid the net proceeds, and you’ll be given the keys to your new house! You can move in whenever you’re ready. It’s time to breathe a sigh of relief and congratulate yourself on a job well done! You can start envisioning all the wonderful holidays, birthdays and other special events that will be celebrated in a place that you’ll be proud to call home
Have Questions? Ask Rene!
