President Biden recently announced he would cancel $10,000 in student loan debt for those earning less than $125,000 per year. The relief includes an additional $10,000 for low-income students who received Pell grants.
"Student debt is a major barrier to homeownership. This is welcome news and brings borrowers who aspire to own a home closer to their goal," said Brett Caviness, president of the Silicon Valley Association of Realtors.
According to a survey from the National Association of Realtors, half of non-homeowners (51%) say student loan debt is delaying them from buying a home. That number jumps to 60% for millennials.
You can get a mortgage while you have student debt. Here are summarized tips that can help make it happen from NAR's consumer website, HouseLogic.com.:
Lower your debt-to-income ratio.
Debt-to-income ratio measures the percentage of your monthly income that goes to pay your debts. The best way to improve your debt-to-income ratio is to live within your means and pay down all loans.
Many lenders consider the ideal debt-to-income ratio, including a mortgage payment, to be 36% or less. Depending on your credit score, savings, assets, and down payment, some lenders may accept higher ratios.
Increase your credit score.
Your credit score is another important number. Boost your credit score by paying your bills on time, using less than 30% of the credit limit on your credit cards, and paying off debts.
Look for down payment assistance.
Down payment assistance programs offer loans or grants. Their eligibility rules vary by state, city, or even ZIP code. In California, the California Housing Finance Agency (CalHFA) offers the MyHome Assistance Program that provides 3.5% in down payment help on FHA loans and 3% on conventional loans. Junior loans are based on the lesser of the purchase price or appraised value and deferred until the house has been paid off, sold, or refinanced.
Get a co-borrower or co-signer.
Put a co-borrower on your mortgage. Their income counts toward the debt-to-income ratio and their credit history bolsters yours, thus strengthening your financial qualifications and offsetting the weight of your student loan debt. A co-borrower, however, would share title on the home you purchase. Another way is to consider a co-signer. Their income will boost your financial profile, but they won't be a co-owner of the house.
Look into student loan protection programs.
You could be eligible for loan forgiveness if you're a teacher, attended a for-profit school that went out of business, or have a total and permanent disability.
Get help from your employer to repay student debt.
Some companies offer student loan repayment assistance. The Coronavirus Aid, Relief and Economic Security (CARES) Act of 2021 gives a tax break to companies that offer student loan repayment assistance. From now until December 31, 2025, employers can contribute up to $5,250 a year tax-free to an employee for repayment of student loans.
Lower your student loan payments.
An income-based repayment plan lowers monthly payments on a federal student loan based on income and family size, capping payments at 10% of discretionary income and forgives the remaining loan balance after 20 years of payments. If you have a private student loan, you may be able to refinance and can get a lower interest rate and save thousands of dollars in interest over the life of the loan.
Get help from a mortgage broker/Realtor who will coach you.
A mortgage broker or Realtor experienced working with borrowers who have student debt can help you find down payment assistant programs, learn the ins and outs of FHA, conventional, and VA loans, and help prepare you to become a better mortgage candidate.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.