Here’s How To Buy A House When You Have Student Loan Debt

So, can you buy your dream house if you have student loan debt?

The common wisdom is bleak: student loans are preventing borrowers everywhere from living The American Dream.

It doesn’t have to be that way, however.

Here are 8 ways to maximize your chance of buying your dream home — even if you have student loan debt.

Student Loan Debt Statistics

If you have student loan debt, you’re not alone. There are more than 44 million borrowers who collectively owe $1.5 trillion in student loan debt, according to personal finance site Make Lemonade.

The same student loan debt statistics report also found that:

Nearly 2.2 million student loan borrowers have a student loan balance of at least $100,000.
There is $31 billion of student loan debt that is 90 or more days overdue.
There is nearly $850 billion of student loan debt outstanding for borrowers age 40 or younger.
With student loan debt statistics like these, it’s no wonder some think it’s impossible to own a home when you are burdened with student loan debt.

Not so.

Here are 8 steps you can take right now:

1. Focus on your credit score

FICO credit scores are among the most frequently used credit scores, and range from 350-800 (the higher, the better). A consumer with a credit score of 750 or higher is considered to have excellent credit, while a consumer with a credit score below 600 is considered to have poor credit.

To qualify for a mortgage and get a low mortgage rate, your credit score matters.

Each credit bureau collects information on your credit history and develops a credit score that lenders use to assess your riskiness as a borrower. If you find an error, you should report it to the credit bureau immediately so that it can be corrected.

2. Manage your debt-to-income ratio

Many lenders evaluate your debt-to-income ratio when making credit decisions, which could impact the interest rate you receive.

A debt-to-income ratio is your monthly debt payments as a percentage of your monthly income. Lenders focus on this ratio to determine whether you have enough excess cash to cover your living expenses plus your debt obligations.

Since a debt-to-income ratio has two components (debt and income), the best way to lower your debt-to-income ratio is to: repay existing debt;
earn more income; or do both.

3. Pay attention to your payments

Simply put, lenders want to lend to financially responsible borrowers.

Your payment history is one of the largest components of your credit score. To ensure on-time payments, set up autopay for all your accounts so the funds are directly debited each month.

FICO scores are weighted more heavily by recent payments so your future matters more than your past.

In particular, make sure to:

Pay off the balance if you have a delinquent payment
Don’t skip any payments
Make all payments on time

4. Get pre-approved for a mortgage

Too many people find their home and then get a mortgage.

Switch it.

Get pre-approved with a lender first. Then, you’ll know how much home you can afford.

To get pre-approved, lenders will look at your income, assets, credit profile and employment, among other documents.

5. Keep credit utilization low

Lenders also evaluate your credit card utilization, or your monthly credit card spending as a percentage of your credit limit.

Ideally, your credit utilization should be less than 30%. If you can keep it less than 10%, even better.

For example, if you have a $10,000 credit limit on your credit card and spent $3,000 this month, your credit utilization is 30%.

Here are some ways to manage your credit card utilization:

set up automatic balance alerts to monitor credit utilization
ask your lender to raise your credit limit (this may involve a hard credit pull so check with your lender first)
pay off your balance multiple times a month to reduce your credit utilization

6. Look for down payment assistance

There are various types of down payment assistance, even if you have student loans.

Here are a few:

FHA loans – federal loan through the Federal Housing Authority
USDA loans – zero down mortgages for rural and suburban homeowners
VA loans – if military service
There are federal, state and local assistance programs as well so be on the look out.

7. Consolidate credit card debt with a personal loan

Option 1: pay off your credit card balance before applying for a mortgage.

Option 2: if that’s not possible, consolidate your credit card debt into a single personal loan at a lower interest rate than your current credit card interest rate.

A personal loan therefore can save you interest expense over the repayment term, which is typically 3-7 years depending on your lender.

A personal loan also can improve your credit score because a personal loan is an installment loan, carries a fixed repayment term. Credit cards, however, are revolving loans and have no fixed repayment term. Therefore, when you swap credit card debt for a personal loan, you can lower your credit utilization and also diversify your debt types.

8. Refinance your student loans

When lenders look at your debt-to-income ratio, they are also looking at your monthly student loan payments.

The most effective way to lower your monthly payments is through student loan refinancing. With a lower interest rate, you can signal to lenders that you are on track to pay off student loans faster. There are student loan refinance lenders who offer interest rates as low as 2.50% – 3.00%, which is substantially lower than federal student loans and in-school private loan interest rates.

Each lender has its own eligibility requirements and underwriting criteria, which may include your credit profile, minimum income, debt-to-income and monthly free cash flow.

Student loan refinancing works with federal student loans, private student loans or both.

If you make these 8 moves, you’ll be better positioned to manage your student loans and still buy your dream home.

Zach Friedman, Forbes

In Seattle real estate market, inventory is finally up

According to the Northwest Multiple Listing Service (NWMLS) Seattle ended June with more than a month of inventory for the first time since September 2016.

In the Seattle city limits in June 2018, NWMLS saw 1,246 active listings, a 75.5 percent increase from the year before. Seattle ended last month with 1.2 months of inventory—a figure based on number of homes for sale and typical sales time—which is nearly double what the market had the previous year.

While this didn’t translate to a decrease in housing prices, they did rise less than last month or last year. Median closing prices rose 8 percent compared to June of last year—but at that time, home values had risen 17 percent. So although the median closing price for last month in Seattle was a whopping $740,000, or $812,500 for a single-family home, it rose far less quickly than this time last year.

County-wide, the inventory picture also improved, although home prices continue to rise; King County ended the month with 1.3 months of inventory compared to .84 last year. And while home prices are rising less quickly than this time last year, too, it’s not by as much. County-wide, home prices rose 10.2 percent over last year—compared to 15.7 percent over the previous year.

Even if home values are rising less quickly, they’re still already high—and still, according to the Puget Sound Regional Council, going up by about $5 every hour of every day. With renters already cost-burdened at a higher rate than homeowners, there seem to be fewer options for entering into homeownership. For people already priced out, there’s not a lot of good news here.

But it’s decent news for current househunters worried about getting priced out before they can get an offer accepted, agents short on listings, or current homeowners sitting on their properties because they’re worried about their next steps.

Meanwhile, though, there’s not much relief in sight for would-be homebuyers in Tacoma. As the City of Destiny’s rent rises faster than Seattle, closing prices have jumped more than 13 percent in Pierce County. Inventory is down and median sale prices are up across the city proper, with the biggest jump in home price, 34.6 percent, in central Tacoma.

~Sarah Anne Lloyd, Curbed Seattle

Is Seattle’s red-hot real estate market cooling down?

For the first time in 10 years since the recession, the number of homes for sale in the Seattle area has increased considerably, reports The Seattle Times.

“There aren’t as many bidding wars right now,” said Beata Miklos, Managing Broker for Savvy Lane, a local online brokerage firm. “There isn’t as much urgency for buyers to place offers because they know that it’s softening up a little bit.”

Fierce competition for low-inventory of homes for sale has led to extreme bidding wars and lightning-fast sales. Now, the total number of single-family homes on the market in King County has jumped 43 percent in June from a year ago. And condo inventory has risen to an eye-opening 73 percent.

The Times reports homes already on the market are sitting unsold for longer periods of times, according to monthly data released Thursday by the Northwest Multiple Listing Service. Brokerages tell the NMLS since mid-spring, they’ve noticed fewer bidding wars and more homes selling for list price or below.

The total inventory of homes listed for sale has grown for three straight months on a year-over-year basis, reports the times, but the region still has a ways to go to make up for the past 10 years of declining numbers of homes for sale.

Robert Wasser of Prospera Real Estate said the price drop from May to June is the first price drop in King County since before the recession.

~Liza Javier, King5 News

Seattle homes sell for $123k over purchase price

SEATTLE – A new survey has found that homes in the Seattle metro area sold for an average of $123,000 more than their original purchase price last year – a gain of 44.7 percent.

Nationally, people who sold their homes last year made $39,000 on the sale, or about 21 percent compared with what they originally paid. Only San Jose, Calif., and San Francisco notched higher price gains than the Seattle metro area.

The survey, by real estate firm Zillow, also found that the typical seller in the Seattle metro area owned the home for nearly 10 years before selling it in 2017.

In the Seattle area, dollar gains on home sales varied greatly from one neighborhood to the next.

Sellers earned the most in the Laurelhurst neighborhood of Seattle, earning $586,000 more than they paid for the home. At the percent gain level, sellers in the North Beach neighborhood of Seattle, gained the most, with a 112.4% gain on the sale of their home.

Elsewhere in the Seattle-Bellevue-Tacoma metro area, homeowners on Mercer Island made the greatest dollar gain – selling their homes for a median of $470,00 more than they paid for the home. At the percent level, sellers in Bellevue reaped the most, with a 73 percent gain.

A short supply of homes for sale has kept upward pressure on home prices, especially in markets where available homes are hardest to find. The profits are welcome news for home sellers who are able to cash in on higher home prices, but demonstrate how difficult the market is for buyers.
In addition, it is increasingly common for homes to sell for more than the listed price – in 2017, nearly a quarter of all homes sold for more than the asking price, up from 18 percent in 2012.

Some other key findings of the Zillow survey:
– The Houghton area posted the biggest dollar gain of any Kirkland neighborhood, with an average gain of $505,500.
– In Bellevue, the Somerset area saw the largest price gain of $560,000, with Cougar Mountain coming in second highest, at $473,000.
– The North Redmond area notched the biggest dollar gain in Redmond, with an average increase of $371,005.
– Seattle neighborhoods that experienced an average gain of $400,000 or more include Laurelhurst, North Beach, Madrona and Montlake.
– The View Ridge-Madison area posted the biggest gain of $116,000 in the city of Everett.
– The Madrona area of Federal Way notched the biggest gain there, with an increase of $99,500.
– The northeast area of Tacoma posted a gain of $104,719.

~KOMO News