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  • Eifert Wade Group

How to Buy a Home Even with Student Loan Debt

My Top Secrets for Buying a Home

Buying a home for the first time can be confusing. That’s why the tips and strategies you’ll find in our 8-week series will set you on the right path. It’s our own unique approach and a “behind the scenes” glimpse of what you should look out for and consider when starting your own search for a home.


Is student loan debt holding you back from being a homeowner?

You’re not alone.


Many first-time buyers are worried that their large student debt takes them out of the game when buying a home. But most of the time, it doesn’t! 


So, don’t automatically assume you’re facing a roadblock to homeownership if you have student loan debt, many people do, even people who have bought a home.

There are ways to work with lenders and assistance programs to make your first home purchase a reality — and even more affordable despite your student loans. 

We understand that you may be grappling about whether you should pay off your student loan debt first before you even purchase a home. That could be an option but don’t make it your only one.


We’ve got some other options for you to consider so you don’t have to delay years until becoming a homeowner, especially if you have substantial student loans.

And always remember to please consult with your own financial advisor to determine what is best for your situation.


How Lenders Look at Student Debt

Let’s get to the basics first. When you buy a home, a lender will look at your debt-to-income ratio or DTI.


It’s the amount of recurring debt you have monthly compared to your gross monthly income.  In a lender’s eyes, your DTI is more important than your credit score or how much money you have for a down payment. Why?


A lender needs to consider your recurring debt — such as a car loan, credit card payments AND your student loan(s) — in order to determine if you can afford more debt with a monthly mortgage payment.


However, most lenders like to stick to the 28/36 rule. And that’s where the 36% DTI from above comes into play.

  1. The 36% is the back-end ratio and equals your entire monthly housing costs expenses (principal, interest, mortgage insurance, property taxes) plus other debts (student loan, car loan, credit cards, etc) divided by your gross monthly income. It’s the DTI we explained above, and you don’t want to go above 36%.

  2. The 28% is part of the front-end ratio equals your monthly housing expenses (principal, interest, mortgage insurance, property taxes) divided by your gross monthly income. Your other recurring debt is not included. Again, a lender doesn’t want to see it above 28%.

Keep in mind, your DTI and the 28/36 rule has nothing to do with your credit score or how well you pay back your debt. It’s looking at the amount of debt obligation you currently have when compared to your income. Not whether you’ve been good at paying your student loan and other debt each month. (But keep doing that too!)

And that’s why it can be frustrating for many first-time buyers with student loan debt who have good credit scores.


How to Lower Your DTI

If you need to lower your monthly debt and obligations, start with your student loan lender(s). Here are some options to consider. Remember to always consult with your own financial advisor before pursuing.

  1. Graduated repayment plan – payments start low and rise every two years as your income should rise.

  2. Loan consolidation – if you have more than one student loan, combine them into one with a lower interest rate.

  3. Lengthen your payback term – spread out your loan repayment over more years to lower your monthly obligation. This will increase you long-term interest payments so carefully way the pros and cons of this strategy.

Examine all of your financial obligations and find other ways to lower you DTI:

  1. Consider bumping up your monthly income with a side job … every little bit could help your cash flow and savings.

  2. Don’t buy a new car to eliminate a recurring car loan debt.

  3. See if you can negotiate a lower minimum monthly repayment requirement on your credit cards, especially one that is on the higher side. Some credit card companies are willing to work with you if you have a good credit score and payment history.

Shop Around for Lender

When you have student loan debt, you need to find a mortgage lender who is willing to work with you and offer programs that may be geared toward borrowers just like you.

Steer clear of lenders whose underwriters just look at your entire balance of student loan debt and not your current monthly payments compared to your income. You will likely not qualify for a mortgage loan with them.

It won’t matter to them if you have lowered your monthly payments with a graduated repayment plan – they will calculate your DTI by using the percentage of your total loan balance.

Many lenders work with state and federal assistance programs, and may have a better track record when dealing with first-time buyers with student debt. Your college or graduate degree is worth something and it should continue to advance your career and your earnings.

These programs below will help jump start your ability to make home ownership a reality.


Keep Increased Loan Limits In Mind

In 2018 the Federal Housing Finance Agency raised the conforming loan limits to a maximum of $679,650. Now it can be easier for many buyers to qualify for conforming loans backed by Freddie Mac and Fannie Mae. This means many buyers won’t need to qualify for a jumbo loan, which requires a larger down payment. This is good news for those of you with student loan debt and constrained cash flow. 


State of Nevada Housing Division’s “Home Is Possible” program

The State of Nevada Housing Division’s “Home Is Possible” program offers a 30-year mortgage with an option for down payment and closing cost assistance of up to 5% of the loan amount. This homebuyer assistance is available to Nevadans across the state.

You’ll need a minimum credit score of 640 or 660 depending on the loan program you choose. And you must complete a home buyer education course to qualify.

The Home Is Possible website explains: “If your family’s annual income is $105,000 or less, and the home you want to buy costs less than $647,200, you’re in the ballpark for Home Is Possible bonus down payment money.” Household income limits can sometimes be up to $135,000 if there are two or more borrowers.

  1. The down payment assistance offered can be between 2% and 5% of the value of your mortgage loan.

  2. This DPA takes the form of a forgivable second mortgage. So, the interest rate is 0% and you don’t have to make monthly payments. Better yet, providing you stick to the rules, your debt will be forgiven after three years

Specialty homeownership programs for Nevadans

The Home Is Possible program also offers special loans for veterans and active military personnel and K-12 teachers which can offer below-market interest rates to qualified borrowers.

  1. Home Is Possible for TeachersBelow-market interest rates on a 30-year fixed-rate loan for K-12 public school teachers in Nevada. Plus, $7,500 in down payment and closing cost assistance. No first-home requirement, but borrowers cannot own real estate at time of closing. Purchase price and median income limits apply. Minimum credit score of 660 for FHA loans and 640 for VA and USDA loans. Conventional loans not permitted.

  2. Home Is Possible for Heroes: Below-market interest rates on a 30-year fixed-rate loan for active-duty service members and veterans. There is no first-home requirement, but borrowers must meet NHD income limits, which vary by household size and county. Home purchase price must not exceed $647,200. Credit score minimum of 640. USDA and VA loans only. No other loan types are permitted.

Both of these loan programs require a one-time fee paid at closing and successful completion of a home buyer education course.

The details and eligibility requirements of all the programs can be quite complicated. But, if you call one of NHD’s approved lenders, a loan officer will walk you through the whole thing and tell you whether you’re eligible.


In addition to the Nevada Housing Division’s DPA offering, the Nevada Rural Housing Authority (NRHA) runs its Home At Last program. This provides up to $25,000 in assistance for eligible borrowers wanting to buy in officially designated rural parts of the state. Again, you’ll have to choose a participating lender.


This, too, can be a three-year forgivable loan with 0% interest and no monthly payments. And, as long as you don’t break the rules during those first three years, this second mortgage will be completely forgiven.


You may also be able to get a Mortgage Credit Certificate (MCC) with this loan, which might save you money on your federal taxes. But speak to an adviser to see if a tax credit will help you.


The Home At Last program also offers refinancing to eligible homeowners.

But whatever NHD and NRHA are offering, don’t automatically choose either of them. First, check out any down payment assistance programs that are offered by the city or county where you wish to buy. Then choose the one that suits you best.


Tapping into Federal Loan Programs

There are several government programs that offer loans to borrowers with student loans. Each has different requirements and may not be a good option for you. However, one may make your homeownership dreams comes true.

  1. Fannie Mae HomeReady Mortgage — allows up to a 50% DTI and 3% down payment.

  2. VA Loan Guaranty – Buyers who have served in the military can qualify for a loan with 41% DTI. That can be overridden if some of your income tax free.

  3. FHA Loan – Usually allows a 43% DTI but will sometime allow a higher DTI on case-by-case basis.

What do I Qualify For?

If you’re looking for resources about programs that you qualify for, use this link https://www.workforce-resource.com/dpr/lopmt/DPC/ANDREA_WADE.


Are You Ready?

Evaluate if you’re truly ready to be a homeowner even though you have student loans to pay back. Homeownership is both a big financial and lifestyle commitment.

You may already be handling sizeable monthly housing costs because of the higher rents in the Reno/Sparks area.  You may be ready to invest that money in your own home and not a rental.


Honestly answer questions about yourself. Do you have a good job with steady income with expectations of more earning power? Do you plan to remain in the area for the next 5 years minimum? Have you been paying back your student loans each month and have some money saved? Is your DTI not too high and you’re willing to find an assistance program that could help?


As a first-time buyer with student debt, you may need to lower your expectations for your first home, maybe change locations or buy a townhome instead of a single-family house.

Focus on getting your first home and clear that hurdle. If you do it right the first time and aren’t house poor, you’ll be able to move up to your next home in later years.


You invested in your education, and it took time to get your degree and start your career. It’s almost the same with becoming a homeowner. It takes time but your first home can lead to your next and so on as you get more financially secure.


Questions and Planning Ahead

We are here to help you determine if homeownership is right for you now or in the near future. It does take some planning even if you don’t have student loans, so give us a call and we can come up with a plan based on your timeframe.

So, don’t let student loan debt slow your home buying dreams from coming true. 

In fact, we’ve had many clients end up paying off their student loans in FULL with the equity they received from their first home purchase. Buying a home could possibly help you pay off your student loans even more quickly! No guarantees, but we’ve known many people to have that experience, including our own student debt!


Up next week is our final article in My Top Secrets to Buying a Home series. You’ll find out why Buying a Home Is Like Falling In Love! It’s a topic you don’t want to miss.

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