As a student, you may have a lot of educational loans to pay off. These loans can get in the way of purchasing a home, a dream you may have had for many years now. Keep this dream alive and deal with your student debt appropriately by taking the following proactive measures.
Lower Your Monthly Student Loans
Before you start shopping for your dream home, if you have any student loan debt, you first need to lower your monthly student loans. This is important because it prevents your debt-to-income ratio from further increasing, showing the mortgage lender you have enough to cover the monthly payments. There are many ways you can lower these payments, including an income-driven payment plan.
There are multiple plans to choose from, all of which help reduce payments based on the money you make. They increase the amount of interest you pay because the term length is extended. A benefit of the Pay As You Earn program is your payments are capped at 10 percent of your income.
Another option is to refinance your student loans, just like you would with house and car payments. However, this option makes your loans private and so, you lose the federal protections that were in place. These include access to income-driven plans and federal forgiveness programs.
After refinancing or using an income-driven plan, you need to make sure you make these payments on time. This will show that you are responsible and it helps boost your credit score. This score is critical for getting a good interest rate on your mortgage loan.
Minimize Debt from Credit Cards and Car Loans
As a student, you may have a lot of debt from your credit cards and car loans. It’s important to minimize this debt so your debt-to-income ratio can be lowered before applying for a mortgage. This starts with setting a budget. There are plenty of personal finance tools you can use online, designed to track your daily expenses and monthly income. Get rid of unnecessary spending and consider opening a savings account so you don’t feel compelled to spend just because you have the money.
You’ll then want to focus on paying off the most expensive debt first on your credit cards. This helps you take care of high interest rates, while still only paying the minimal balance on the rest of your credit cards. Ideally, whether it is your credit cards or car loans, you should strive to pay more than the minimal balance. This helps you get rid of debt quicker, freeing up some of your income for monthly mortgage payments. Lastly, you should stop using your credit cards until all debt is taken care of.
Purchase a Home You can Afford
Once you have taken proactive steps to lower your debt, it’s time to shop for the right property. But, you need to make sure you get a home you can truly afford. There may be houses that are large and take your breath away, but they have to be within your budget before you make any offer. Since this is probably your first home, don’t hesitate to look at starter homes for sale.
Sure, it may have some minor damage on the interior, but this gives you the chance to get creative. You can build your dream home from scratch, seeing your ideas come to life before your very eyes. Just make sure the house is professionally inspected and that you research the geographic location.
Buying Maple Grove homes for sale as a student with a lot of debt may seem like an impossible task, but it is completely doable if you take proactive steps at repaying your debt and staying within your means when looking for property.
For more helpful tips on buying a home, check out our articles on Lake Minnetonka Home Buying Tips to your right under the Lake Minnetonka Real Estate Categories.