Overcoming student loan debt is a big challenge for many young adults who are looking to own their first home. According to a survey released by the National Association of Realtors, 23% of first-time buyers said saving for a down payment was difficult, while 57% of that group cited student loans as a factor. This article from Bankrate explains the facts and misconceptions behind student loan debt, and offers three solutions for how homebuyers can overcome it.
The problem is that student loans can be included in the buyer’s debt-to-income ratio, or DTI – the percentage of monthly income that is spent on debt payments, including mortgages, student loans, auto loans, minimum credit card payments and child support.
This ratio is one factor lenders use to decide whether a buyer can afford a mortgage payment. Generally, mortgage lenders prefer a debt-to-income ratio of 36% or less.
The home payment is an important part of DTI. Because the payment is affected by home price, property taxes and interest rate, a borrower’s DTI is a moving target.
There are three ways to overcome a DTI difficulty: Reduce debt, increase income or decrease the target mortgage payment.
