Student loan debt is considered one of the biggest obstacles for young homebuyers, and many are turning to creative solutions in order to achieve their dream of homeownership.
Of course, student loans can affect your ability to save for a down payment, but did you know that they can also affect your overall mortgage eligibility? Because the repayment amount is factored into the crucial debt-to-income calculation, many young people with moderate incomes are unable to qualify for a mortgage. (A recent change to FHA rules announced in September 2015 can hurt young buyers with student loan debt even more).
While these requirements are there for a good reason — after all, they are intended to protect borrowers from defaulting — many borrowers feel that the rules and guidelines make it nearly impossible to attend a four-year school and purchase a home in your 20s.
One bank in North Dakota is taking an interesting approach to working with young homebuyers with student loans. As an incentive to use Gate City Bank, this lender is providing student loan refinancing at just 1% APR if they finance their home through the bank. While this enticing offer isn’t available locally, we expect to see more and more lending institutions offer incentives for young homebuyers with student loans — after all, it’s a major sector of the market!
Refinancing is one consideration for Millennials with student loan debt looking to purchase their first home. As Realtor.com explains, “Student loan refinancing is a growing industry where borrowers with good credit can get lower interest rates on their loans and sometimes get rid of them faster, though it’s not right for everyone.” Another recommendation is to focus on improving your credit scores, as strong credit (often defined as a FICO score 720 or higher) will help a borrower secure the lowest interest rates on both a home and student loan refinancing.