Student loan advice for first-time home buyers
Student loans affect your monthly budget which, in turn, affects your DTI. However, there are ways to reduce what you owe to the government each month to help you qualify for “more home”.
One method by which to reduce your monthly student loan obligation is to switch to an income driven repayment plan on your loans.
A graduated repayment plan is one for which the payment starts low, then rises every two years to meet the rising income of a typical college graduate. With lower monthly payments, your debt-to-income ratio is reduced, which can help you qualify for your home loan.
Loan consolidation is another way to reduce your monthly student loan obligation.
It’s likely that your student loans are of different amounts, and at different rates of interest. By consolidating your loans,you can lump your principal balances together at, hopefully, a lower interest rate.
You can also request a lengthening of your payback period, known as your “term”.
By lengthening your term to 15 years or 20 years, you can reduce the amount that you owe each month, which lowers your DTI. This will increase the long-term interest costs of your student loans, but will lower your monthly obligation.