Can I Buy a Home With Debt?
When it comes to buying a home, many people are concerned with their debts. Headlines frequently discuss student loan debt, and how it holds people back from home ownership – particularly the millenial generation. Another easy “fact” to find online is that lenders want your total debt, mortgage included, to exceed no more than 36% of your gross income. Like most things online, these headlines are at best misleading, and usually, just blatantly false.
While mortgage lenders do look at a borrower’s total debt picture – credit cards, student loans, auto loans, and other debt – it doesn’t keep as many people from home ownership as the headlines would lead you to believe. Some loan programs allow borrowers to have a debt-income ratio (the amount of debt, including your mortgage, as a percentage of your total gross income) as higher as 55%. And lenders do not look at debt that’s not on your credit report (with the exception of some loan programs like VA loans, which look at utility costs and disposable income more than actual debt load), so things like your cell phone bill, cable, and utilities aren’t factored in. So while it’s a good idea to keep your debt carefully managed and to not borrow more than you can handle, lenders are more flexible than most people are led to believe.
Buying a home with debt is in fact very common – nearly everyone has some kind of outstanding debt – be it student loans, auto loans, or credit cards, and certain loan programs can be extremely flexible – especially when it comes to mortgage with student loan debt. For some loans, people can qualify based on income-based repayments, or loan forgiveness, depending on the student loan terms.
Bottom line, having debt should not prevent you from looking into home ownership. In fact, with heavy debt being one thing that prevents the accumulation of wealth, having a home and mortgage that offers the benefits of appreciation and amortization is a great way to build a healthy financial future while paying off student loans or credit cards. Even better, once you own a home, you can use your home equity to access cash to pay down or off higher interest rate debt – for example, if you have an 18% rate credit card, and can take cash out of your home at a rate of 4-5%, you can potentially see a huge monthly savings and use that savings to pay debt down faster – home ownership offers options.
So can you buy a home with debt? Can you qualify for a mortgage even if you have a lot of student loan or credit card debt? Ask an expert today to find out what options are available to you – we’re happy to help!