Many millennials are pointing to their student loan debt as a reason that they can’t buy a home. However, according to the 2016 National Association of Realtors® Home Buyer and Seller Generational Trends study, 35 percent of all recent buyers were millennials. So, how are these buyers reconciling student loan debt with mortgages?

One investment advisor, John Burkey of Burkey Capital, plans to launch a jumbo mortgage product that would allow borrowers to roll their student debt into a mortgage. However, the program would be for jumbo loan mortgages, which start at $417,000, and would initially only be available to borrowers with very strong credit, high incomes, and a high level of job security.

Other options

What can millennials who aren’t high earners do to qualify for a mortgage? It may be possible to alter your debt-to-income ratio (DTI) to make it more favorable. Your DTI is the total amount of debt you have compared to the amount of money you earn. Clearly, student loan debt can raise that percentage, but there may be ways you can nudge it back down:

  • You may be able to apply for a deferment, which can decrease or even stop your monthly payments for a set amount of time. If your student loan has been deferred for at least one year, it won’t be factored into your DTI if you are a Veteran and apply for a loan guaranteed by the Department of Veterans Affairs (VA). Conventional loans and Federal Housing Administration (FHA) loan will include student loan debt in the qualification process regardless of deferment.
    ● You may be able to apply for a graduated payment plan, which lowers your student loan payments for two years and then increases them every two years after that. If you’ve got a solid job and expect your income to increase, this could be a good option.
    ● You may be able to consolidate your loans, which might increase your payment term from 10 years (typical for student loans) to up to 30 years. However, remember that a consolidation loan may be issued by a private lender, which means you won’t be able to apply for a deferment.
    ● You may be able to get rid of other debt, like credit cards, to lower your DTI. And if your installment debt, such as a car loan, will be completely repaid within 10 months, some lenders may be willing to remove it from your DTI.

Don’t let student loans stop you

Student loans don’t have to be an obstacle to homeownership. Find out how much debt you need to reduce before you qualify for a mortgage, and get started. Set a budget that will help you reduce your debt and save for a down payment. If you need more information about mortgages and your student loan debt, contact Embrace Home Loans at 407-733-6425. We can work with you to help you figure out how you can qualify for an affordable mortgage.

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